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City Council December 13

Wraps up 2006 Budget, debates an increase in business license fees
Hospitality tax revenue distribution
Marc Knapp

City Council wrapped up its discussion on the 2006 budget and there were no surprises. The highlights of the budget have already been reported in the Post and Courier and last night's discussion broke little new ground. Suffice to say that Expenditure for the year to December 31, 2006 is projected at $126.3 million, an increase of 8.9% over that projected for 2005. A number of factors contributed to the increase and included Cost of Living increases for wage and salary earners. These amounted to 5.5% for those on low levels and fell to 3.5% for those at higher levels. There were also significant increases in health care costs, and retirement benefits following State mandated changes.

Spending increase follows 5% increase in projected property tax receipts
The 8.9% increase in budget spending will be partly financed by an increase in property tax revenues. The budget calls for a contribution of $43.32 million, a 5% increase over that budgeted for 2005 at $41.29 million. The balance of the higher revenue to cover costs will come from fees and charges, in particular business license fees. The proposed increase in the latter was criticized by 3 council members and is discussed later.

Mayor Riley rose to make the point that revenues to cover projected spending were to be derived without an increase in the millage rate for determining property taxes. Indeed because of property reevaluations, the millage rate at 73.8 was well below the 96.8 of last year. Also, the City had set a millage rate less than that which was possible under State law. He went on to say that the property tax rate had fallen consistently over the last 20 years with the strong inference that citizens should applaud loudly the City's parsimony. Council member Fishburne reminded the Mayor that really, the rate may have fallen but all citizens had suffered considerably higher taxes by virtue of the sharp increase in property values over the period. So the City had picked the fruit will little effort in cultivation. The Mayor also said that half the folk in the City would enjoy a decrease in property taxes this year. We are not in a position to take issue with him but as yet we have not met a single person who has confessed to a reduction.

Policy to diversify revenue sources
The Mayor also pointed the City's policy to diversify its revenue. Although property taxes continues to be the most important source of revenue, the contribution to total City revenue was projected at 43.8% in 2006 and compared with 55.7% in 1990. We don't debate these percentages; we just took exception to the congratulatory tone of his comment. We rose to point out that there may have been some reduction in the percentage, but this did not mean that citizens were being taxed less. Look at the host of other taxes and fees that had been introduced and increased over the last 15 years or more. And one must not forget the recent half-cent sales tax. And whatever way the Mayor wants to slice it, property taxes are forcing people out of their homes. The County School Board may have responsibility for a large part of this year's increase, but the City could have done more, in my opinion, to scale back spending and thereby property tax increases.

Business license fees to be raised

Balancing the budget will also be made possible by an increase in business license fees, amongst other things. Earlier this year, the City decided to raise building permit fees but has now had second thoughts. South Carolina law limits revenues from fees to only cover the cost of the administration of the services for which the fees are charges. According to the City staff, and increase in fees would have lifted revenues beyond a level that covered costs and could have been challenged. So it was back to the drawing board with a subsequent decision to target business license fees.

Fee revenue to rise 10% in budget
The actual increase proposed varies with the nature of the business and size but overall, will represent 12% in the basic rate and 7% in the incremental rate. License fees are projected to rise to $22.3 million in fiscal 2006, up 10% from that budgeted for the current year. Council member George was the first to rise in criticism of the increase. He said that the fees were a burden on businesses, particularly small businesses. It was not just the imposition that was made by the City but of surrounding municipalities as well. Any entity that did business outside the City was obliged to also pay for a license issued by the appropriate municipality. Individually, the licenses may not be so much, but the costs mounted.

By way of example, a Class 1 style of business is now was obliged to pay $36 on the first $2000 of revenue and $1.45 per $1000 on revenue thereafter. So a company with revenue of $100,000 would be up for $178.10 in fees. However, for a Class 6 business, the fees could be double that shown in the example. The foregoing rates apply only if the business has a Charleston address. Rates are double if the business doesn't. Rates also decline as revenues exceed $1 million and amount to a 50% of the rates shown above when revenues rise to over $10 million.

Burden heaviest on smaller businesses
As Council member George indicated, the burden is heaviest on smaller businesses. And although some of these businesses can pass fees on to customers, many can't. It is a charge that has to be borne fully by profits. And Council member Fishburne also noted that the fee is levied against revenue and not income. So the impact is magnified on the bottom line. It is hard to generalize as to what would typically be a gross profit level but if we said 20%, we probably are not too far out. So sticking to the $100,000 revenue example, a 20% profit margin would yield $20,000 out of which the entity has to pay $178.12, slightly less than 1%. If the entity were a Class 6, it would bear a rate near 2%. These are hardly rates that would deter most businesses but they are still significant.

Increase is OK because it is long time since we've had one!
Council member Tinkler reminded Council that license fees had not risen since 1989 so an increase now was not inappropriate. But again as Council member Fishburne pointed out, the City may have had a steady rate, but it enjoyed the benefit of higher revenues of the license holders each year, reflecting prosperity and inflation. Can you imagine if the Federal government reasoned that the tax rate in 1990 was 35% but because there had not been an increase for 10 years, an increase now to 38% was justified? Stand back!

The Mayor had the final word and opined that the higher rates would have minimal impact on business in Charleston. He said that business came to Charleston because of the quality of the environment in a broad sense, not because of low costs.

Distribution of Accommodation tax proceeds
The Budget for the accommodation tax was also discussed last night, but not at length. Viewers can see the allocation of funds by pressing here. There were no surprises but Council member George did point to the increase that had occurred in the allocation to the SC Aquarium. In 2005, it was allocated $100,000 and is slated to receive $125,000 in 2006, allocations that were made despite promises some years ago made by the Mayor

Only one Council meeting remains for 2005. In the New Year, we will see the new members joining Council, Robert Mitchell and Kathleen Wilson. An African American member of the public spoke of the respect he had for Council members even though he often disagred with some of their views. He was very upset that a high standing member of the African American Community had sent a letter to voters in District 12 describing Council member George as a racist. This was unfair and untrue he said. I also spoke in Citizen's Participation and said that Council member George would be missed by many of us. He asked hard questions and scrutinized the City's affairs the closest of any mamber of Council.

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