Realtors hope report spurs 'call to action' to reform school funding

tbarton@beaufortgazette.comJune 3, 2013 

A report released last week by the Hilton Head Area Association of Realtors predicts long-term financial woes for Beaufort County and its schools because of a 2006 state law.

"If the county continues to grow, and if a large share of that growth is only in owner-occupied residential property that generates no additional tax revenues for school operations and no increase in state property tax relief ... the school district fiscal position will continue to deteriorate," the report states.

The report, however, offers no specific remedy for changing the law.

Prepared for the Realtors association by the University of South Carolina Beaufort and Clemson University's Strom Thurmond Institute, the report underscores points made by Beaufort County Realtors, politicians, businesses and school officials.

The law gave a tax break to resident property owners by exempting them from paying property taxes used to fund school operations. To replace the revenue that schools lost, the law increased the state's sales tax by 1 cent on the dollar.

Owners of businesses, second homes and rental property didn't get the tax break on property taxes. They continued paying property taxes for school operations, as well as the increased sales tax.

The law has long frustrated Realtors and second-home owners, many of whom believe it's unfair for them to pay for schools in a community where they don't live year-round. It's also spurred a sharp increase in the number of homeowners seeking to make second homes their primary residence.

In Beaufort County, 15,174 owner-occupied homes were added to the tax rolls between 2006 and 2009. During the same period, 16,950 commercial and rental properties were removed from the tax rolls, according to the report.

As a result, the school district was hit twice. It lost the ability to tax rentals converted to owner-occupied homes, as well as the higher taxable value of the commercial and rental properties removed from the tax rolls. Commercial and rental properties are taxed at 6 percent of their assessed market value. Owner-occupied homes are taxed at 4 percent.

That has placed added pressure on the district to raise money through tax increases, which fall disproportionately on second homes and businesses, according to the report.

"Act 388 shifted a sizable burden of the future property tax burden for school operations from owner-occupied residential property to commercial/rental," the report states. "... The perception of an unfair tax burden caused by Act 388 could jeopardize some future rental and business development, especially in resort destinations such as Hilton Head Island, the city of Beaufort and other coastal communities."

Before Act 388, commercial and rental property comprised about 60 percent of the tax base for school operations funding, according to the report. Now commercial and rental properties comprise more than 80 percent of the tax base for school operations.

Manufacturing, utility, and other real and personal property combined make up the remainder, less than 20 percent.

Jean Beck, executive vice president for the Hilton Head Area Association of Realtors, hopes the report will serve as a "call to action" for developing a solution to more equitably pay for schools.

"As Realtors, we sell more than homes. We sell the community, and the vitality of schools is an integral part of the quality of life," association president Linda Frank said in a news release.

State Sen. Tom Davis, R-Beaufort, and Rep. Bill Herbkersman, R-Bluffton, are among the legislators who have attempted to change the law.

Davis offered a plan this year to lower property-tax rates on rental property, second homes and businesses while also generating more state education dollars for Beaufort County and other coastal school districts.

Herbkersman authored a bill to help counties cover the cost of school operations through a local option 1-cent sales tax that would offset property taxes on commercial and rental properties. That bill, aimed at spreading school costs more evenly among all residents, did not advance.

Both legislators said the report lends credence to their calls to reform the state's tax laws.

"Many layers of legislation passed over a number of years has led to the predicament we are now in, and in order to undo the damage caused by Act 388 and related legislation, a clear understanding of what those prior laws did and how they interact with each other is critical," Davis said.

Related content:

State Sen. Davis: Property tax reform unlikely this year: April 12, 2013

Herbkersman proposes bill to allow local-option proceeds to pay for education: Feb. 15, 2013

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