Flaws in new tax plan now apparent

By PAUL KROHNE

Guest columnist

Writer Margaret Atwood wasn’t talking about the General Assembly or the hastily considered “tax swap” legislation adopted during the final days of the legislative session when she observed, “My good intentions are completely lethal.”

She might as well have been. Over the past few weeks, as conflict has erupted — between school leaders concerned about quality services for students and business leaders concerned about their share of the tax burden — it has become clear that good intentions may give us a lot of unintended consequences and great potential for damage to schools, with surprisingly little benefit.

Cracks in the historically strong alliance between schools and businesses, as a result of the law’s disturbing unintended consequences, have begun to show. Businesses, facing higher taxes as a result of the tax swap law, are caught between supporting schools and holding the line on costs. Instead of a focus on the real issue — the flawed legislation — the state Chamber of Commerce has formed a disturbing alliance with an anti-tax organization falsely accusing some school districts of inflating their budgets.

While reasons vary, all budget increases were made openly to support startup costs for opening new schools, manage significant student growth, maintain special or magnet programs, hire new staff to meet state and federal mandates, institute new education opportunities for students or simply meet the inflationary costs of operating schools.

Another major consequence of the law is its financial damage to educational programs and opportunities for students. The question is not if, but how much. Already, Moody’s Investors Service has issued a negative outlook on the capability of South Carolina’s school districts to borrow funds due to new revenue caps, and warned of the likelihood that districts will be forced to drain reserves to keep schools running, reducing their ability to manage unforeseen costs. Local property taxpayers — the very people the law is supposed to protect — will be forced to pay more to borrow money for renovating and building new schools.

The tax swap law places nearly all education funding in the hands of the General Assembly and, at the same time, replaces a relatively stable source of funding with a much more volatile and less predictable source, sales tax. That combination troubles anyone familiar with the Legislature’s record of cutting education funding when times get tough. In past years, the General Assembly has resolved budget constraints by diverting lottery revenues to other sources and drastically under-funding school transportation.

Now, communities must trust the Legislature and the governor to see the value of programs currently funded by local tax dollars that go beyond bare minimums and create top-quality education in schools, including smaller class sizes, extended learning opportunities, magnet programs, competitive teacher pay and hundreds of others that parents consider important.

In lean years, when sales tax revenues decline and budgets are tight, one can be assured this is a losing bet for our children.

Yet even if the Legislature defies history and meets its obligations under the new law every year, growth limits and revenue restrictions in the law will still make it much more difficult, if not impossible, for schools to maintain high-quality programs or invest in long-term improvement. Without the flexibility to raise local revenues, schools that are faced with large cost increases — from high student population growth or other conditions beyond their control — will be forced to deplete reserves or cut programs. Much like an individual’s saving account, when school reserve funds are gone, disaster is sure to follow.

Anyone who believes school leaders are crying wolf should study the disastrous conditions in Colorado. After 14 years, the tax relief program to limit government growth has been suspended so the state can begin to repair its decaying infrastructure, from roads to health care to education. Over time, public schools there have been forced to cut “extras” like athletics, art and music that were once offered to students as part of the school program. Now, those programs exist only if parents can raise the resources to fund them or only to those who can afford them.

So, will the benefits to a very select few taxpayers outweigh these unintended and damaging financial consequences to schools and the children they serve? According to a recent analysis by the Strom Thurmond Institute of Government and Public Affairs, there will be little gain for many and big gains for a few. The study reveals average families — those earning less than $32,000 per year, encompassing 60 percent of the state’s income distribution — will net around $200 or less in overall tax savings each year by swapping local property taxes for an additional sales tax. Wealthier families, with generally more expensive homes, get a much bigger break.

The General Assembly has pledged to review the tax swap law and recommend revisions by January. At a minimum, it should restore the ability of local school boards representing their communities to raise sufficient local revenues and to provide the opportunities they want for their children.

Dr. Krohne is the executive director of the S.C. School Boards Association.