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reprint or license thisProperty tax reform
School districts wary of new funding system
Some educators not convinced sales tax money will meet rising costs
By BILL ROBINSON
brobinson@thestate.com
Confusion and frustration reign among school administrators and trustees across South Carolina as they grapple with deciding how much money they will need to operate public schools in the upcoming academic year.
The reason?
State lawmakers abolished annual taxes on owner-occupied houses that school systems rely on to fund the local share of public education expenses. By January 2008, the Legislature will start replacing that money with revenue that it expects a penny increase in the sales tax to generate, beginning next summer.
School districts, meanwhile, have one last opportunity to shape spending plans for the 2006-07 school year with taxes collected from homeowners. The tax rate the districts settle on becomes the starting point for what future legislatures will provide from sales tax revenue — plus increases that take into account inflation and population growth.
“Most (districts) are still coming to grips with the changes from this legislation,” said Scott Price of the S.C. School Boards Association. “Many are focusing on building the next fiscal year’s budget ... and how the related decisions will impact them financially in the future. The true impact may not be known for some time.”
The sea change in the property tax law bothers trustees in districts with growing enrollments, like those in the Columbia area. Will the Legislature provide the amount of money that escalating operating costs demand, they wonder.
“When times are tough because of a poor economy,” Price said, “the General Assembly’s focus is not going to be on funding magnet schools and other educational extras that the public demands locally. With the purse strings in Columbia, these programs will suffer.”
NERVOUSNESS IN LEXINGTON 1
Case in point: Lexington 1, one of the state’s fastest-growing suburban school systems.
A year ago, it promised parents intensive foreign language instruction in select first-grade classes at three elementary schools, which would continue to expand as those students move through the system. Administrators are unsure the district will have enough money to hire more bilingual teachers in the future.
“I’m worried we are not going to be able to keep our commitments,” Lexington 1 board chairman Bert Dooley said.
“The people in this community trust us to do the right thing. And we’ve got a pretty good track record of doing that,” Dooley said. “With this law, I just don’t know if we’re going to be able to maintain what we’ve been able to achieve” over the past decade.
Lexington 1 financial officer Karl Fulmer recommended the seven-member school board approve a $148.1 million budget for the 2006-07 school year, an increase of $10.2 million. The Gilbert-Pelion-Lexington-White Knoll area is in the midst of a housing construction boom that will push enrollment past 19,000 students in August.
Fulmer advised Lexington 1’s board to withhold a vote on a specific tax rate that will be used in figuring this fall’s property tax bills because he said he needed more time to analyze the new tax reform law.
“For rapidly growing school districts like ours, this legislation contains no provisions to make the funding level,” Fulmer said. “Ultimately, it could force school districts to increase pupil-teacher (class) ratios.”
State Sen. Larry Martin, R-Pickens, said, “Do you raise your (tax rate) against every class of property to set the bar a little higher in order to get money back from the state the following year?”
“You’ve got to account for that money” this year with constituents, Martin warned.
That won’t likely be a problem in Lexington 1, where the $10.2 million increase in spending includes $1.7 million for two new schools and another $1 million for preparations to open two more in August 2007. Richland 2, which expects to welcome 22,000 pupils this fall, has two new schools set to open in August and another one a year from now.
Bob Davis, Richland 2’s chief finance official, has doubts the new property tax reform law will enable — or even obligate — the Legislature to provide his district with the extra money it will need to open new schools in the future. His counterparts in other districts with growing enrollments, such as Lexington 1 and Lexington-Richland 5, share that concern.
“The good news, as I see it,” Davis said, “it ends the war (over property taxes) between homeowners and schools. That’s about the end of the good news.”
‘JURY IS STILL OUT’
Rep. Bill Cotty, an architect of the tax reform law, said he understands the trepidation.
“The jury is still out in the public education and local government community on the property tax reform package ... and whether it will be good or bad, fair or unfair, to public schools and counties,” the Richland County Republican said.
The new tax law, Cotty said, should provide increases in school operating revenue of at least 6 percent. Factor in annual growth in property values that Cotty says is typically 3 percent, “and you can live within 9 percent — unless you are throwing it away.”
Like counterparts on the other side of the Lake Murray dam, Lexington-Richland 5 school system leaders also are uneasy.
Two weeks ago, trustees postponed a preliminary vote on a new budget for Irmo-Chapin schools because they were nervous about how the new law will affect their district. The District 5 board is scheduled tonight to resume budget talks that likely will carry over into July.
Trustee Jan Hammond said she believes the Irmo-Chapin school board will take a conservative approach to setting a tax rate one last time.
END OF LOCAL CONTROL?
Lexington County’s five school districts are among 23 across the state that have the authority to set the annual property tax rate that produces money for school operations. In government budget-writing terms, that authority is known as fiscal autonomy.
“With the (property tax-sales tax) swap, we have shifted a great deal of the local decision-making about what we as communities want for our schools to Columbia,” said Price, the school boards association lawyer. “I don’t think that has sunk in yet in terms of the general public’s understanding of what has occurred here.”
Martin, the Upstate senator who helped broker the tax reform compromise, acknowledged that “there is definitely going to be less decision-making by local school boards.
“The public policy decision we made, for good or bad, is the state is going to set the amount it spends per pupil across this state. That is going to play out in different parts of the state in a much different way,” Martin said.
Elected officials with fiscal autonomy say the tax reform law stripped them of that power.
“I prefer to call it ‘modified’ fiscal autonomy,” Cotty said. “I’m confident that we’ll make the adjustments needed to make this work for everybody. I assure you we’re committed to that.”
District 5’s Hammond said she has “faith in ... legislators. As this (law) is implemented, as problems become aware to us that we did not anticipate, I believe they will fix it.”
Ed Harmon, a Lexington 1 trustee, is skeptical. “It really is the result of a Legislature that chose to pass a law without doing an impact study.”
The new tax reform law includes wiggle room for local school boards and county councils to raise taxes — with limitations. A checklist of emergencies is included in the legislation, while there is a cap on changes in the annual tax rate that can be passed on to landlords, commercial and industrial property owners.
“Small business will bear the brunt of this,” warned Lexington 1 trustee Frank Shumpert, who runs family-owned businesses in Pelion.
Reach Robinson at (803) 771-8482.
