Hilton Head Island government probably can keep its spending steady next fiscal year; thereafter, maintaining services and meeting demand for new ones will become increasingly difficult.
That assessment from town manager Steve Riley comes after a recent financial audit cautioned that the island faces two obstacles: It will be built out in about 20 years; and state law limits the town's ability to raise property taxes.
"We can't just keep adding on," Riley said. "There are going to be choices, and they'll be more difficult as time goes on."
A 2006 state law prevents local governments from raising their property-tax rates for operations above the rate of inflation and population growth. That will hamper the town's ability to continue paying for current services, the audit said.
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At the same time, requests from residents to build a rowing and sailing center, aquatics facility, concert hall and a $12 million expansion and renovation of the Island Recreation Center mean yet more money will be needed.
"We can build most anything," town finance director Susan Simmons said. "There aren't many restrictions on building. It's operating it. We have to be very careful what we build, to ensure we can operate it."
The town has eliminated 15 positions in the past three years, about a 6 percent reduction in staff,and trimmed $1.7 million from last year's $33.5 million operating budget by sharing staff among departments, outsourcing services and other measures, Simmons said.
Spending, however, still outpaced revenues, and the town took about $877,000 from reserves to balance the operating budget, according to records.
"We have been cutting costs and staff, and will continue to do that," Riley said.
He cited council's decisions to reject federal grants to hire additional firefighters and purchase a fire-rescue boat as examples of tough choices ahead.
Aside from limited ability to raise taxes, the town faces limits to its tax base.
"We're at about 75 percent built-out," Simmons said.
Build-out is about 20 years away, she estimates, which means it's not an immediate concern but still a factor that needs to be considered.
In the meantime, the town is encouraging owners to renovate properties to increase values, which would bring in more tax money. It's doing so by rewriting certain building regulations, making permitting simpler and quicker, rezoning land for better use, installing sewer service, improving roads, and swapping land with developers, officials said.
"We've got some things going on," Simmons said.
She cited luxury hotel chain Omni Hotels & Resort's overhaul of the Hilton Oceanfront Resort in Palmetto Dunes and Kroger's plan to redevelop the Mall at Shelter Cove.
"The question we need to address is, 'How creative can we get?' Are there other revenue sources we haven't considered or other fees?" Riley said.
"How could you use an expanded rec center to generate more revenue?" he added.
Mayor Drew Laughlin called the audit an "appropriate cautionary statement" but also believes the town can build and operate some of the amenities residents have requested without increasing taxes or making drastic cuts to other services. The town could borrow money to pay for projects that could be built over time.
"We've got some bond debt that will start dropping off," he said. "As those debts fall off, the money being used to pay that debt could be used to borrow to create and operate some of these projects."
Less-restrictive property tax laws would help, the mayor added. Laughlin criticized S.C. legislators during his January State of the Town address.
"I think it's taking the decision-making out of the hands of local government where it ought to be," he said Friday. "It locks you in to your existing level of service."
Follow reporter Tom Barton at twitter.com/EyeOnHiltonHead.
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