Property tax bills could rise despite declining property values

cconley@ilsandpacket.comJanuary 12, 2013 

Some Beaufort County property owners could be hit with higher tax bills this year, even though their properties have lost value.

Preliminary data from an ongoing property reassessment show pronounced declines throughout the entire county. Drops were sharpest in and around Bluffton and with undeveloped lots and condominiums.

Property-tax bills are determined by multiplying a property's assessed value by the tax rate. But with tax rates due to increase in the coming year, some people will pay less and others will pay more despite lower values countywide. It won't be known how many property owners would be affected until April at the earliest.

Meanwhile, some county council members are arguing for spending cuts later this year to blunt the impact of higher rates. The uncertainty has kept county staff from starting work on a budget that would be difficult enough without the reassessment.

"It's almost like we have a little 'fiscal cliff' of our own because (so much) is still unknown," county assessor Ed Hughes said this week.

WHAT'S AT STAKE

During periodic reassessments, a property's value, determined by the assessor, is adjusted up or down based on market conditions.

Historically, most property values have risen between reassessments. In those situations, tax rates "rolled back" to protect property owners from higher tax bills and prevent local governments from reaping a windfall. Roll-backs create revenue neutrality that's required by state law.

The trend of ever-rising property values suddenly ended in early 2008, when property values began falling sharply.

Five years ago, for example, the owner of a home then valued at $400,000 might have paid $1,500 in property taxes after the tax rate, or millage, was applied. But if the value of the home fell to $300,000, the property taxes would decrease proportionately, assuming the tax rates remained the same.

And that would result in less income from property taxes for the county.

To prevent the loss in revenue, county officials are considering "rolling forward" tax rates -- that is, increasing rates to offset the decrease in property values.

THE LAW

State law is explicit when it comes to rolling back tax rates, but not clear on rolling them forward. Seeking clarity -- and worried about less tax revenue -- Beaufort County in 2011 asked the state Attorney General's Office for a legal opinion on rolling tax rates forward.

The opinion said the principle of revenue neutrality was also in effect when property values fell, so tax rates could roll forward to achieve revenue neutrality.

Based on preliminary figures, county officials think homes that lost 13 percent or more of their value would pay less in taxes than in previous years assuming a full roll forward.

This presents a further complication for elected officials: High-end property tended to lose more of its value than moderately to low-valued property during the recession.

That means more of the county's property-tax burden could shift to those who are less affluent or who live in areas with low property values.

Councilman William McBride, the St. Helena Democrat who has served nearly four terms on the council, favors a full roll forward. He predicts a healthy debate on that question in the coming weeks.

"I'm sure there probably will be, knowing the composition of the (council)," he said Friday.

WHAT'S HAPPENING NOW?

Last week, Councilman Rick Caporale argued that a roll forward was basically a foregone conclusion. The reason? Budgets area already lean.

"We've got to be careful what else we do," Caporale said. "I can't imagine anyone would suggest we make further cuts to library hours. I can't imagine anyone would suggest we do furloughs for hundreds of employees. I can't imagine we continue to raise fees for Parks and Leisure Services."

Not everyone agrees a full roll forward is in order.

County administrator Gary Kubic acknowledges the state law on roll forward is ambiguous, prompting some council members to propose a "partial roll forward."

Councilman Brian Flewelling, for example, suggests the council should roll rates forward, but not so much as to achieve revenue neutrality.

"I firmly believe there will be some compromise. There has to be," he said Thursday.

Such a compromise would require some spending cuts, but would shield more people from a tax increase.

Kubic said he'll recommend council accept the full roll forward to adhere to state law. But if they decide cuts are necessary, he says they can roll rates forward and then cut the budget to achieve the same result as a partial roll forward.

Based on that principle, Council Chairman Paul Sommerville says it's too soon to know where things will end up. Council doesn't set tax rates until August.

"Do budgets rise to the level of requiring a full roll forward or not? If they do, (the full roll forward) stays. If it doesn't then you can start rolling it back," he said.

Council is expected to begin debating the issue within the next month, although some are hoping talks begin sooner.

Assistant county administrator Bryan Hill says county finance staff are hoping for an answer on roll forward by March 1. Once the issue is decided, it will be clear what, if any, cuts are needed in the 2013-14 budget, which takes effect July 1.

Follow reporter Casey Conley at twitter.com/IPBG_Casey.

Related content:

Attorney General says tax 'roll up' required, Aug. 2, 2011

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