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Property-tax plan unleashes unintended consequences

It's no surprise that quickly conceived plan has problems

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State lawmakers' hastily constructed property-tax reform plan already is weakening at the seams.

One state senator says he wants to roll back the year used to figure school district funding to 2005-2006, accusing some districts of padding their budgets this year to make sure they get more money when the new funding plan goes into effect next year. Sen. Larry Martin of Pickens says that's not fair because some districts don't have the ability to raise taxes, and so will get short-changed when tax reform goes into place.

Going backward in funding is a scary proposition in a fast-growing county like ours, especially with the cuts in state funding we've had. Our school district operating budget increased from $137 million for 2005-2006 to $147 million for 2006-2007. The tax rate increase takes into account that we are making up for a $15 million cut in state funding.

To understand how ill-conceived school funding is in this state consider this: Some school boards can set their own tax rate; some school boards must get budget approval from County Council, which sets the rate (as is the case in Beaufort County); some must hold a referendum to go above a specified rate; and some must get approval from their legislative delegation for a rate above a specified amount.

This isn't even a full list of all the ways tax rates are set for school districts. All told, there are 12 different ways tax rates are set for the state's 86 school districts, according to the S.C. School Boards Association.

But the complications don't end there. Business leaders are crying foul because the tax reform exempts only owner-occupied homes from school operations taxes. They fear they will bear the brunt of school funding increases in the future. Second-home owners, a large segment of owners in this county, also face that.

According to a recent analysis done by Beaufort County staff, owner-occupied homes and mobile homes account for only 26.1 percent of the total real property value in the county. Homes valued at 6 percent for taxing purposes account for 57.8 percent of the total value. Commercial property accounts for 12.1 percent of the total value.

In their zeal to provide property-tax relief for voters and limit local government spending, state lawmakers have taken an already complicated system and made it even more complicated.

Starting in January, counties, cities and schools will be prohibited in almost all cases from increasing property tax rates by more than the increase in inflation plus population. They can override this limit under certain circumstances, but only with a two-thirds majority vote.

The state will use an increase in the state sales tax from 5 percent to 6 percent to make up for the loss in residential property taxes for school operations. In 2007-2008, each district will receive the amount it would have collected in residential taxes. In later years, the portion each district receives will be based on the number of students and how difficult each is to educate.

You can see why school districts might want to get themselves in the best position possible this fiscal year. What did lawmakers think would happen? Or did they think?

Here's something else they didn't think about: Moody's Investors Service has raised a red flag on school district financing as a result of the new law, the Charleston Post & Courier reports. The agency assigned a "negative outlook" on public school borrowing in South Carolina, which could lead to lower credit ratings for individual districts. Analysts report that the new law will hurt district's financial flexibility. That could translate into higher interest rates on bonds sold by the school district and more money out of our pockets.

Higher interest rates hit fast-growing districts like ours particularly hard. School district officials have projected we'll need nearly $250 million in new facilities and renovations over the next five years.

Lawmakers say they can always change the law setting out property-tax reform, but if Sen. Martin knee-jerk reaction is any indication, there's little hope they'll do so with the long term in mind.