A proposal to Hilton Head Island Town Council would increase the property-tax rate to offset an expected reduction in property values.
Town staff members say the change isn't a true tax increase because the town wouldn't collect more revenue, but some council members are concerned that property owners will view it as an increase, just the same.
"It seems to me that we're talking semantics," said Mayor Drew Laughlin at last week's Town Council meeting. "I may not be increasing the amount of taxes that (the town is) collecting, but if my property is not worth as much as it was, and I'm paying the same amount of taxes, it seems to me, it is (a tax increase)."
Some residents may, in fact, pay more in taxes if their property values increase or don't drop much from the reassessment. Recent estimates from Beaufort County predict an average 8.4-percent decrease in assessed property values on Hilton Head.
Historically, most property values on the island have increased between reassessments. The state requires property-tax rates to "roll back" in those instances so that revenue remains neutral, preventing local governments from getting a windfall.
But this year -- with most assessments expected to decrease --the rate would be "rolled up" to keep revenue neutral.
According to an advisory opinion from the S.C. Attorney General's Office, the town is required under state law to roll up the property tax rate to stay revenue neutral when property values drop, just as it is required to roll back the property tax rate when values increase.
Still, if the town increases the rate to meet the requirements of state law, it could later reduce the rate if it chose to do so, said Susan Simmons, the town's finance director.
Town manager Steve Riley said if the town doesn't raise the tax rate, it would lose $1.5 million for next year's budget.
That's because increases to property-tax rates are capped by state law. The tax rate can only be increased based on local population growth and inflation, until the next reassessment year. Real property is reassessed every five years.
Less revenue also could hamstring the town's ability to pay for projects the council wants to pursue, including construction of bike paths, Coligny-area redevelopment, formation of an economic-development corporation and incentives to attract businesses, Riley said.
"Those are expenses that you know are coming down the road," Riley said. "All of these things are going to be adding up, and your ability to fund operations and maintenance is going to be really tied up if you decide that you can't stand (the rate increase.)"
Council needs to let town staff know soon if it doesn't support the rate increase to keep revenue neutral because the budget proposal assumes it will, Riley said.
Laughlin said at a council budget meeting Tuesday that most residents want the projects that could be cut.
"But more importantly," he said, "I think those cuts become permanent, essentially. You cut it this year, it's gone."
Property-tax bills are determined by multiplying a property's taxable value by the tax rate.
For the town to collect the same amount of revenue, the tax rate would need to increase by 9.4 percent to 21.15 mills, Simmons said.
"While you can have a difference of opinion about this, or how it feels in your pocketbook, a reassessment is a reallocation of taxes ... and is not considered a tax increase or decrease," she said.
"When your house value decreases," she added, "it would be nice if your tax bill decreased at the same time, but ... the cost of providing fire services and roads and all the services that the town provides didn't decrease just because the value of a home decreased."
The county's final property-value analysis is expected in August.
Follow reporter Brian Heffernan at twitter.com/IPBG_Brian.