Live on Hilton Head? Your property taxes may be going up

Hilton Head Island residents could see a portion of their property taxes increase for the first time ever this fall as the town prepares for what it expects will be a tough economic year ahead.

The increase would be relatively small - $3 for many homes -- but it signals how much town officials are fretting over the long-term financial picture. As the island approaches build-out, the housing market and economy continue to slump and a new state cap limits the ability of local government to tax its residents, the town is being forced to reexamine its spending practices on everything from pathway construction to police services.

Overall, the proposed $73.9 million budget for the 2008-2009 fiscal year the Town Council began discussing Tuesday is drastically conservative compared to years past, shrinking nearly $9 million from this year. Cuts are proposed across several departments, including slowing construction projects and not adding new Town Hall staff positions.

"We're going to need to be more selective on how we take on new initiatives," town manager Steve Riley said. The increase "is something that I'm afraid I think we have to do."

The town is proposing raising its operating millage, or property tax rate, by .36 for a total of 19.36 mills. The increase translates into about an extra $3 on a $200,000 owner-occupied home.

It will bring the town an extra $297,000 next year. The town has raised its capital projects millage before to pay for land acquisition, but this is the first increase for the operating millage, Riley said. The money will help offset rising costs for personnel, health insurance, maintenance and fuel, he said.

Revenue from other sources such as building permits, real estate transfer fees and business licenses are expected to drop off dramatically in some cases next year. But Riley said the main reason for the tax increase is the new state law that took effect last year that limits property tax increases to the rate of inflation -- about 2.9 percent this year.

The law was meant to take the burden off homeowners who saw their property tax bills skyrocket in recent years. But the town said the cap forces governments to choose between upping taxes each year or risk not being able to collect enough revenue for its needs in future years.

"I just hate to see us raise taxes and spend it just because the state has put the stupidest plan in place it could think of that encourages people to raise taxes," Mayor Tom Peeples said.

But as the budget process continues over the next month, council members said they might look to cut or push back some capital improvement projects to find enough money to avoid the tax increase. The trick is finding the balance, officials said.

"We're in a changing time," Riley said. "Just to hunker down and say 'We're not building anything any more,' we can't do that. We've got to keep improving this place."

CAPITAL IMPROVEMENTS

The town will take a more conservative approach to the slate of construction projects planned for the next few years because its revenue streams are expected to slow. The council began reviewing its capital improvements portion of the budget Tuesday that deals with projects like new roads, pathways, parks and drainage projects.

The town is proposing spending $28.1 million on projects in the 2008-2009 fiscal year that starts July 1, about an 11 percent decrease from this year.

Highlights include:

• $2.5 million for pathways, including new paths along Palmetto Bay Road.

• $7.4 million for roads, including widening the northern portion of Mathews Drive.

• $1.8 million for parks, including the renovation of the entrance to Coligny Beach Park.

• $5.2 million for new facilities, including the fire and rescue training center and a new Facilities Management headquarters.