Act 388 and Beaufort County's property value reassessment has left the Beaufort County School District with a $4.2 million hole in its budget -- money that will be plucked out of the school district's $30 million reserve fund and could lead to a tax increase next year.
We are not convinced, as county leaders would have us believe, that nothing more could have been done to ensure tax collections projections were closer to target. It seems that adequate preparation was not done to get ready for the double whammy of reassessment and the continuing fallout of Act 388.
Still, there is merit in the fact that this unexpected shortfall has gotten the attention of both county and school districts leaders who plan to evaluate their budgeting process this week and find improvements.
So how did county and school district leaders not see this coming?
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The main reason is Act 388, a 2006 state law that shifted the responsibility of paying for school operations to rental homes, second homes and commercial properties. Owners pay property taxes on 6 percent of their property's assessed value.
Meanwhile, owner-occupied homes were relieved of paying for school operations via property tax dollars. These owners are taxed on only 4 percent of their property's value. (Owner-occupied homes are not totally off the hook though. They still contribute to school operations through the state sales tax that was bumped up to six cents on the dollar as part of Act 388.)
We have plenty to say about the flawed Act 388 that also prevents districts and local government from raising millage rates by more than a state-set formula. But since no traction exists in the S.C. legislature to revise the law -- because it would trigger a property tax increase for most of the state's homeowners -- we'll save that criticism for another time.
The pertinent point is that Act 388 is here to stay for the foreseeable future, and local governments and school districts must get better at taking it into account when preparing their annual budgets.
This is a particularly tall order for Beaufort County, which has relatively high property tax rates compared to other S.C. counties and also includes many more second and vacation homes.
The result: when ACT 388 was passed and the economy slowed a couple of years later, many owners of Beaufort County vacation/second homes claimed to have moved into them full-time.
And in the years since, additional owners of second homes have followed suit, reaping the tax savings of paying the 4 percent rate vs. the 6 percent rate.
Fast forward to today. More than $3 million of the district's current $4.2 million shortfall can be attributed to county residents re-categorizing their homes and being relieved of paying the operational expenses of Beaufort County's public schools.
The situation gets even stickier for two main reasons:
That leaves the school district in a precarious situation, unsure of the year-to-year change in tax dollars pegged for operating schools and subject to setting a tax rate that doesn't cover its expenses.
While the inability to predict the number of switches was a legitimate problem in the first few years after Act 388 was passed, it's difficult for us to believe that now -- eight years after the law passed -- the Beaufort County still has such a high degree of difficulty predicting tax collections. Surely, the county can use data from previous years to give a more reliable projection to the school district than they did this time.
We're pleased that both the county and school district are set to discuss the issue. Both groups' finance committees will meet Tuesday to evaluate the budgeting process.
Of course, the county and school district will never be able to precisely predict tax collections. Thinking beyond Act 388, reassessment occurs every five years, introducing new variables including the number of appeals owners will file on their assessments. Indeed, last year's reassessment is another reason the school district is facing a shortfall now.
But budgeting improvements likely exist and are within reach. It's incumbent upon the county and district to seek them out to ensure taxpayers are never again caught offguard by such a large withdrawal from the district's reserve fund and a subsequent tax increase.