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"Things are tough, and they look like they are going to be tough for a while," Mayor Tom Peeples said at the annual breakfast, sponsored by the Hilton Head Island-Bluffton Chamber of Commerce.
The discussion topics were supposed to be illegal immigration, school funding and the Bluffton Parkway. Those were the issues the local business community said were the most critical in an online poll conducted before the event.
But Peeples said the struggling economy takes precedence because the town will have to cut back on improvements and other programs throughout the community.
Peeples and Beaufort County Council Chairman Weston Newton outlined how the economic slowdown is playing out here.
For Hilton Head, a slowing economy means less income, Peeples said. The town's revenue from the real estate transfer fee fell to $2.9 million in the fiscal year that ended June 30, according to town data. In the previous fiscal year, that fee brought in $3.7 million. The record was $6.7 million in the 2004-05 fiscal year.
Construction permit fees also fell by about $100,000 between the 2006-07 and 2007-08 fiscal years.
Less income means fewer community improvement projects. "We cannot do everything that we are being asked to do," Peeples said.
Capital improvements make up about 36 percent of the town's budget, or $28 million. Some of the projects discussed in two upcoming town workshops could be delayed and others could be cut entirely, Peeples said.
It's not just revenues that are decreasing. The credit markets for municipal bonds, which are often used to fund public projects, have tightened significantly.
"It's no different from a family budget," said Thomas Doe, president of Municipal Market Advisors, a firm that helps governments find credit. "We're not going to go out to dinner anymore. We're not going to buy a new car. That's the similarity."
'BUY LOCAL' URGED
Beaufort County also is facing some discouraging economic data.
The county will issue 2,000 fewer certificates of occupancy this year and is facing more than 100 new foreclosure filings per month, Newton said at the breakfast. A certificate of occupancy means a building is ready to be occupied.
He said residents can help boost the local economy, however, and encouraged people to buy local goods and patronize local businesses when possible.
Newton said county government will do the same.
The county will ask Clemson University to study how much a system that favors local businesses for contracts would help the local economy, Newton said.
After that study, the county will consider an ordinance to help favor local businesses for contracts, he said.
Peeples also pushed for local reinvestment, specifically encouraging rental-property owners to invest in their properties to make them as attractive as possible.
"We need to make sure Hilton Head Island is the place they (visitors) want to come to relocate; that Hilton Head Island is the place they want to take that next vacation," Peeples said.
TAX CHANGE CRITICIZED
Some people, however, will be discouraged from improving their property because of the recent overhaul of the state property tax law, Peeples said.
State law mandates that property values jump from the assessed value to the market value when the property is purchased or extensively renovated, a move called a "point of sale" adjustment.
That means, for instance, if a homeowner pays $20,000 for renovations, the home value will increase by the same amount, causing property taxes will go up, too.
That law has discouraged people from renovating homes or from moving from one area home to another, Peeples said.
"(The law) has had a very chilling effect on real estate sales in general," Peeples said. "It's absolutely the wrong thing at the wrong time."
Peeples also expressed concern that people would start renovating properties without building permits to circumvent the tax law.
Linda Palmer, president of the Hilton Head Area Association of Realtors and a Realtor with Keller Williams Realty, said the combination of the point-of-sale adjustment, along with the fact that second-home owners pay a higher tax rate than owner-occupied homes -- 6 percent as opposed to 4 percent -- has hurt the vacation real estate market. That market represents as much as half of the sales on the island.
Palmer said she's seen buyers skip Hilton Head to purchase vacation properties in areas with lower tax rates.
