When the General Assembly opened this year’s session on Tuesday, it had only one major issue on its collective plate — property tax reform and school funding. Wait, that’s two issues.
Ah-ha, nobody ever expects the Spanish Inquisition!
But seriously folks, fueled by a flush state budget for the first time in five years and public outcry over rising property taxes and the state’s still-48th public education system, legislators in the state Senate and House are mulling separate, but similar, plans to address both issues.
At a legislative workshop held in Columbia last week, some of the heaviest hitters from both the state Senate and House — Reps. Dan Cooper, Bill Cotty, and Gilda Cobb-Hunter, and Sens. Hugh Leatherman, Thomas Alexander, Jim Ritchie, and Vincent Sheheen — came together to lay out the different sides of the issues in an informative and, at least for now, collegial atmosphere.
While the proposed House and Senate plans both include increasing the state sales tax from 5 percent to 7 percent, the House would remove all school operating taxes from owner-occupied homes.
The Senate is putting forward two constitutional amendments — one would deal with standardizing property tax reassessment formulas across the state, and another would cap millage growth. In addition, a proposed bill would address how public education is funded across the state — whether solely from state or county taxes, or a combination of both.
The Senate’s bill would remove just part of the operating taxes from some kinds of private property. Second homes, rental, and commercial property would continue to be taxed to pay for the day-to-day operation of the schools — not for capital projects like buildings.
In combination with the extra 2 percent sales tax, the Senate would like to lower the maximum state tax on food to 2 percent. The idea here is that since any sales tax is by nature regressive — easier for rich folks to pay than poor folks, thanks to economies of scale — it would lessen the sting felt by those at the bottom of the wage-earning spectrum.
Because of the differences between the House’s and the Senate’s approaches, Sen. Ritchie (R-Spartanburg) said a compromise bill probably wouldn’t be passed until the last day of the session this summer.
Compromise will likely be complicated by the issue of redistribution, which wasn’t addressed by the assembled legislators. But be sure, no politician wants to tell their voters that sales taxes gathered in their county would be going to Columbia for distribution to other areas of the state.
Further complicating the situation is the concern in the Statehouse about how a recent court decision could force the state to greatly expand its pre-kindergarten offers.
Sen. Sheheen (D-Kershaw), who serves on the Judiciary Committee, supports funding schools via state sales tax because he sees it as the only way to invigorate education across the state in a meaningful way.
But Sheheen, who is not facing reelection this year like all the members of the House, also wants politicians to speak plainly to their constituents about the bill.
“We need to tell people that what we are proposing isn’t cutting taxes, it’s shifting taxes,” said Sheheen, who said that currently between 55-65 percent of a homeowner’s tax bill goes to support schools.
The problem for property owners comes when a reassessment drastically increases the value of their house. People living on a fixed income in a paid-for home on, say, the peninsula, can suddenly find their tax bill increase drastically after a reassessment, which is supposed to happen every five years in Charleston County, but has had as much as eight years between reassessments, exacerbating the increases
Rep. Cotty (R-Richland) complained that local governments have made it harder on homeowners across the state by not reducing the millage enough after a reassessment.
“Even though it seems like they’ve lowered taxes when they say they lowered millage rates, they haven’t,” said Cotty, who saw the taxes on his personal vacation property increase sevenfold after a recent reassessment.
Cotty, like others on the panel, is worried that if this situation continues across the state, it will pit homeowners against school districts — something he said will have disastrous ramifications in a state already struggling to turn out competent students.
Throughout the state, there are 48 different approaches to assessing the value of homes for property tax purposes. The Senate’s proposed constitutional amendment would provide one statewide approach to reassessment.
The Senate-sponsored constitutional amendment would either assess the value of homes at their “point of purchase” value or limit a local government’s ability to raise millage rates in the assessed value of property.
A point of purchase levy would either tax the bejesus out of homebuyers while protecting the elderly who don’t plan to leave their paid-for homes, or it could create a de facto “impact fee,” shifting the property tax burden to the transplants moving into South Carolina from other states for all the roads, infrastructure, policing, etc., that comes with a growing population.
A millage cap would cut off the amount a home could be taxed on its new value. For instance, if a home’s assessed value went from $600,000 to $1 million, a 25-percent cap would limit the taxable value of the house at $750,000, or one quarter more than the home’s last assessed value.
Sheheen said a millage cap, which would probably come in between 15 and 25 percent, would not only be constitutional — responding to a question from a very active and involved Barbara Williams, editor of The Post and Courier — it would also be “reasonable,” and not restrict services.
But Sheheen also said that there was “no question” that an increase in sales tax could become doubly regressive in a county that chose a tax cap if the millage amendment passed. Charleston County homeowners with the fastest-appreciating homes would be spared from shouldering the same amount of the school operating costs as before, while the burden would shift further down the economic ladder.
Sheheen supports reassessment reform, but only if school funding legislation is passed to allow a state-collected sales tax to fund education.
Rep. Cobb-Hunter (D-Orangeburg), who sided with Republicans on the issue of changing Medicaid, did not support Sheheen’s position.
In what will surely presage a fight in the Statehouse, Cobb-Hunter worries about the reliability of an increased sales tax, “especially if we are facing a recession in the upcoming years,” referring to some sobering news that the current surpluses could be replaced by more budget deficits in as little as three years.
What if Hurricane Katrina slammed into Charleston or Myrtle Beach? What would happen to the state’s economy, and by extension sales tax revenues?
Could schools then be crippled by a once-in-a-lifetime natural disaster, or a terrorist attack like 9/11, which cost the Charleston area alone millions and millions of dollars in the weeks after it, or a run-of-the-mill economic downturn like the one that hit the state in the first part of this millennia? Especially considering as much as 18 percent of sales tax is currently collected from tourist dollars?
Here’s hoping an answer shows up this session, because the only thing legislators hate more than a legislative session dragging on into the summer is the Spanish Inquisition. A-ha, no one expects the …