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Saturday, September 1, 2007

Involuntary Municipal Annexation: The Ugly Truth

Municipalities in Four States Have Unlimited Power to Annex Contiguous Areas

Suppose you received a letter informing you that the nearby city had decided to annex your property. Beginning the next year, you learn, your property taxes would double and no additional government services would be provided.

If that happened, you may be sure that 1) your property had been assessed at a high value, and 2) you lived in one of the four states–Idaho, Indiana, North Carolina, or Tennessee–where the law permits “involuntary annexation.” (While these four are the major offenders, many other states engage in this practice to a lesser extent.) Of the four, the law in North Carolina is by far the most onerous and the one most difficult (actually virtually impossible) to oppose. It may be worthwhile to investigate what it is that makes these four states so enlightened and the other 46 so benighted. As a resident of North Carolina , I am most familiar with the laws of that state and will describe involuntary annexation from that perspective.

Under North Carolina law municipalities are in effect given absolute power to add desirable contiguous areas. The requirements for involuntary annexation are simple and clearly intended not only to smooth the process but also to permit the acquisition of as much valuable property as possible. Although the procedure requires a hearing, its purpose is only to provide information, not entertain points of view. One year after the hearing, the municipality may enact the annexation, with no provision for challenge.

Why would a municipality want to annex communities around it? There is a common expression: When someone says, “It isn’t about the money,” it’s about the money. If you read between the lines, you’ll find dollar signs all over. When faced with budgetary problems an urban government in a state that permits forcible annexation has certain choices: 1) reduce spending, 2) raise taxes, or 3) add high-value property to its boundaries. The first one is rarely considered; if something is in the budget, it is almost unfailingly assumed to be needed or at least desirable. The second choice is politically risky. Because the third choice is available in this state, it may be possible to locate some adjacent ripe fruit to pick.

My choice of words is not arbitrary, for there is ample evidence of cherry-picking when it comes to enriching a municipality’s real-estate tax base. What else can it be called when upscale subdivisions are grabbed and low-income areas, which really could benefit from increased services and which in some cases have actually requested to be annexed, are bypassed?

This illustrates the fundamental difference between voluntary and involuntary annexation. If an area asks to be annexed (voluntary), there is no obligation to consider it; if it suits the municipality’s governing board to ignore the request, that’s that. On the other hand, if the municipality wants to annex (involuntary), there is essentially no recourse. On occasion, lawsuits have been attempted, but with few exceptions they have not succeeded beyond delaying the inevitable. Even worse, those living in the areas being annexed cannot vote in the municipal elections until one year after they are absorbed, which introduces the issue of taxation without representation.

A major player in the fight to maintain the current law is the North Carolina League of Municipalities (NCLM), which bills itself as “a nonpartisan federation of North Carolina’s cities, towns and villages” and which is affiliated with the National League of Cities. If that is the definition of nonpartisan, then nothing deserves to be called partisan. Both the state and national organizations filed a “friend of the court” brief with the U.S. Supreme Court on behalf of the city of New London, Connecticut, in its notorious eminent-domain case that deprived Suzette Kelo and others of their homes.

What can annexation do to people’s tax bills? I checked the results of several involuntary annexations and found increases from 60 to more than 100 percent. As a result of the convoluted law, one locale is currently faced with a bill for 21 months of taxes, due immediately.

A newspaper column I wrote about involuntary annexation produced a torrent of e-mails filled with anger over the battles the writers have had to wage to keep the hands of adjacent cities out of their pockets. One person spoke about having moved out of town twice, only to be forcibly annexed again. Others reported tax increases so large (sometimes more than double the previous rate) that they may be forced to sell their homes. Many described months and years of lawsuits, with accompanying legal fees, hoping—usually in vain—to prevent annexations with nothing to offer but tax bills.

The annexing cities and towns often claim that people in the surrounding areas use their “services” without paying for them. Let’s examine this and some other claims of the pro-involuntary-annexation champions. Following are verbatim quotes from the NCLM, each with commentary courtesy of your humble writer.

“[B]ecause of annexation, North Carolina ‘s central cities are dominant job centers; . . . experience dynamic economic growth.” No evidence is offered that the same areas, in the absence of involuntary annexation, would have less-dominant job centers or would experience less economic growth. On the contrary, the increased taxation produced by the annexation may have had the opposite effect.

“North Carolina ‘s cities annex new (populous) subdivisions; zero-elastic cities cannot.” This is merely a tautology. The term “elastic” means that the city is allowed to annex involuntarily, whereas “zero-elastic” means that the city is not allowed to do this. Most important, there is no reason whatever to assume that an area consisting of a city and its suburbs will be less prosperous than a city with no suburbs because they have been absorbed into the city.

“Overall, half of all jobs in North Carolina are located in the state’s 21 central cities.” This point is a non sequitur, for it is true in state after state, whether or not the workers themselves are city residents.

“Citizens [of an area being annexed] receive municipal services, typically police, fire, parks and recreation, streets, street lighting, garbage collection, recycling, planning and zoning, often access to water and sewer.” Except when they don’t. By the very nature of involuntary-annexation decisions, newly annexed areas usually have every amenity its people want; otherwise, they wouldn’t be attractive to the annexing city.

“Annexation . . . helps keep property tax rates lower.” That depends; if you add to your tax base by grabbing prosperous adjacent areas, you can fund more programs with the additional revenue. Whether the property tax rates will or will not be lower, at least in the long run, depends on the municipalities’ attitude toward increased tax revenue.

“North Carolina leads the nation in Aaa bond-rated cities.” No surprise. The ability to separate people from their hard-earned dollars through forced annexation makes municipal debt easier to acquire. The result may be either beneficial or detrimental, depending on the decisions of the municipalities. If anything, the lure of easy credit, as with private finances, can lead to short-sighted or even foolhardy expenditures.

Fiscally Conservative?

“NC municipal officials are fiscally conservative.” Really? When “projects” include such items as multimillion-dollar entertainment centers to be funded largely with tax dollars, the term “conservative” may be a bit of an overstatement.

“North Carolina became a great state by moving forward and not letting a few people veto progress for everyone else.” In 2006 North Carolina was one of ten states whose credit rating was put into the “negative outlook” category (as reported by Moody’s and by Standard & Poor’s), one step above “downgraded.” (The rating was upgraded again in the 2007 report.) This may be considered “moving forward” by some, but not everyone will agree.

“Changing North Carolina’s annexation laws will cost city and county taxpayers millions of extra dollars for higher bond interest rates.” On the other hand, it might introduce more fiscal responsibility when the enticement of ever-expanding revenue sources is mitigated.

“Annexation of urbanizing areas is the most cost-effective way to deal with growth. Expanding existing infrastructure, rather than building new systems, benefits the vast majority of taxpayers.” No proof is offered of this contention. Expanding existing systems, such as water supply and sewage treatment, may distort and overburden existing systems that were never designed to accommodate greatly increased usage. The result may necessitate redesigning or even rebuilding currently operational systems. Such a possibility is never even considered by the NCLM’s arguments.

Septic-Tank Red Herring

 ”Veto [NCLM's code word for people opting out of involuntary annexation] will lead to more of North Carolina’s growing population being on septic tanks, substandard wells and privately-operated and sometimes costly sewage treatment plants that significantly increase environmental and public health risks.” All new private wells, septic systems, and treatment plants must meet government standards for both human and environmental safety and may be placed in operation only after inspection, testing, and approval.

“An area’s economy is only as good as its city’s economy.” The expansion of the suburban economy may be just as effective as that of the city’s.

And the oft-repeated theme: “Don’t mess with success.” Success for whom? Not for the people who have been drawn into a city’s boundaries and have received little or nothing of value in return for their increased tax bills. Not for the people whose property taxes have as much as doubled and who may now be faced with either doing without necessities or else selling and moving elsewhere. Not those who try to sell their property and then discover that the tax rate has made their homes difficult, if not impossible, to sell because taxes are a major consideration for potential buyers. Not for those who had to sell their homes for far less than they otherwise would have received, because taxes are so much higher than for equivalent homes outside the annexed area. And certainly not for those who decided to live where they were because they wanted no part of the city’s problems, such as political maneuvering, safety issues, and the spending of tax dollars on “projects” that have nothing to do with the legitimate functions of government.

One common notion (considered almost axiomatic) is that the addition of outlying areas, with the resultant increased revenue, is beneficial to city finances and thus helps the city’s residents. Let’s examine one example in North Carolina. During the decade ending in 2000, the city of Charlotte used involuntary annexation to increase its population by 84,000 people (read: taxpayers), a 21 percent increase over 1990, and the process of annexation has continued every two years since then. So, has Charlotte’s tax rate (defined as taxes and fees) been kept low? No, Charlotte has the highest rate in North Carolina.

What Can Be Done?

What options are available to those who consider forcible annexation an imposition on their rights as citizens of the state as well as of the United States, land of freedom? Some people have banded together to fight the would-be annexing city with lawsuits. On extremely rare occasions they have won, at least for a while. There is, however, another argument for suing: that for every year they delay what may be inevitable, they are saving significant money.

There is another possibility, but it will require a combination of patient effort and determination. As long as the state legislature hears only the arguments of the NCLM, whose members are spending tax dollars to work for their own interests and against the people’s interests, involuntary annexation will be around forever. Each year, several bills are introduced into both legislative houses. Most of the time they are simply bottled up in the assigned committees and never see the light of day. But consider: The targeted taxpayers far outnumber the tax receivers. Perhaps what is needed is more organization, including an investigation of the unholy alliances between the League and the legislature.