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Capitol Comment

    Capitol Comment 276 - Annexation in North Carolina: Democracy Denied

    05/10/2000

    Over the past decade, North Carolina has experienced a period of rapid growth. Along with this growth have come demands from cities and towns for larger budgets and new tax revenue. To meet this demand, more and more municipalities are resorting to a controversial procedure known as "involuntary annexation."

    Annexation is simply a process whereby an existing municipality absorbs outlying areas, provided certain conditions are met. Generally speaking, the area to be annexed must be at least partly developed, and the annexing municipality must pledge to provide the same level of services — water delivery, road improvement, sewer lines, police, fire protection, trash collection, and so forth — that it currently provides to its own residents.

    Hostile Takeovers. The controversy arises over the fact that residents of an affected area have virtually no power to stop involuntary annexations. Typically, the governing body of an existing municipality simply announces its intention to annex a given area and holds public hearings.1 Essentially, involuntary annexation turns the notion of democracy on its head.

    Advocates of involuntary annexation claim that it provides for orderly growth of municipalities, negates the effect of suburban flight from cities, and avoids creating a patchwork of municipal services. These noble-sounding justifications are usually crafted only to make the lives of bureaucrats easier and swell city coffers. The victims of involuntary annexation can, however, face a host of negative impacts.

    Homeowners whose land is annexed can be hit with thousands of dollars in impact fees, utility connection charges, and road improvement bills. By some estimates, the cost can reach as high as $5,000 to $10,000 per household.2 Residents also become subject to new taxes imposed by the annexing municipality. In addition, the annexing municipality can alter zoning ordinances, for example, changing a community’s designation from agricultural to industrial.

    Safe Haven? To avoid the threat of involuntary annexation, many communities have sought refuge through incorporation. Like existing municipalities, newly incorporated communities retain control over tax rates, zoning ordinances, and provision of services. They also become eligible to receive a percentage of the state-collected taxes on retail sales, beer and wine, and gross receipts.

    Incorporation has picked up steam over the past decade. Between 1990 and 1999, North Carolina’s incorporated municipalities grew by more than 5 percent.3 Ten additional communities had petitions pending before the legislature during the 1999 session. In response to this trend, the General Assembly passed H.B. 964 on July 20, 1999. The bill subsequently became Session Law 1999-458 with the signature of Gov. James B. Hunt Jr. on August 13. The law makes new incorporations more difficult in a number of ways.

    New Rules and New Taxes. First, the law requires a community petitioning for incorporation to guarantee that it will provide at least four of eight key municipal services, as opposed to the two services required under previous legislation. Second, the petitioning community must pledge to impose an ad valorem tax on all taxable property of at least $0.05 per $100 of assessed value.4 This provision was specifically designed to force newly incorporated municipalities into levying property taxes on their citizens instead of relying on their share of state-collected taxes.

    Third, the law modifies population requirements. Previously, incorporating communities were required to have a total population of at least 100 people. The new legislation retains that standard, but also requires a population density of at least 250 persons per square mile. Fourth, the law requires that the petitioning community provide a report on the financial impact incorporation would have on existing municipalities. Finally, the law prohibits a new municipality from receiving its share of state-collected taxes if it fails to meet all of the above requirements within three years after incorporation. This same prohibition applies if a majority of the new municipality’s streets are not open to the public (thus preventing the incorporation of gated communities).5

    Of course, the tax and service provisions of the new law can be ignored by a newly incorporated municipality after a few years — so long as it is willing to forgo their share of state-collected taxes. Homeowners facing the threat of annexation also dodged at least one bullet. Early versions of H.B. 964 required new ad valorem tax rates of $0.20 per $100 of assessed value.6

    Annexation Without Representation. Advocates of the new law claim it will stop what they say are a proliferation of incorporations made only to dodge involuntary annexation or to grab a share of state revenue. But, in reality, by making annexation easier, the new law puts additional barriers in the path of communities that wish to retain control of their destinies and overall character.

    Involuntary annexation, it is claimed, helps provide for "orderly" development. In America, however, governmental visions of "order" must not take precedence over fundamental principles, such as allowing individuals to organize their communities as they wish.

    1 North Carolina General Statutes, Chapter 160A.

    2Bill Coleman, Town Manager, Cary, NC, The News and Observer, December 24, 1999.

    3 News & Record, June 13, 1999.

    4 H.B. 964, "An Act to Revise the Municipal Incorporation Process so as to Provide More Scrutiny," North Carolina General Assembly.

    5 Ibid.

    6 North Carolina General Assembly Legislative Fiscal Note, H.B. 964, April 19, 1999.