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County Council, March 15

Tax burden to be cut further for property owners?
But millage increase possible this year
Warwick Jones

Homeowners in South Carolina are already set for a break on property taxes. They could have another within a few years. Last year, the State voted to introduce a 1% sales tax, beginning June 1, to fund education spending. The sales tax replaces that part of the annual property tax levied by the County and allocated for education. However, the property tax burden was removed only for owner-occupied dwellings. Commercial and rental properties would continue to be taxed as in the past.

Tax bill down 40-50% this year for owner-occupied property
The new legislation will have a significant impact on property taxes for owner-occupied dwellings this year. The reduction has been estimated at about 40 to 50 % of a typical property tax bill. And from discussion at yesterday’s Council meeting, owner-occupied dwellings could enjoy another and similar reduction within a few years.

The South Carolina Code allows a County Council to hold a referendum to seek permission to impose up to a 1% sales tax to provide a credit against “county and /or school district property”. The Code also states that the tax credit be “applied to all classes of property subject to tax”.

Council seeks to amend state code for possible referendum
Yesterday’s Council discussion was not about holding a referendum, but about seeking a change in the Code to allow funds derived for a new sales tax to be applied to “one or more classes of property subject to such tax” instead of “all” property subject to the tax. Translated this means that the funds derived from a new 1% sales tax could be applied to only owner-occupied dwellings and not to all property.

After considerable debate, Council agreed to send a resolution to the State General Assembly seeking a change in the Code.

Yesterday’s discussion was the first we have heard about a possible referendum on another sales tax increase. As we noted, there was no discussion on the referendum itself. But it seems safe to assume that if the wording of a referendum question is being considered, a referendum is a possibility. Most of the discussion yesterday was whether the proceeds should be confined to only owner-occupied dwellings or spread amongst all property owners.

Some Council members want benefit spread amongst all property owners
Council member Condon was the most vocal in calling for a distribution to all property owners. She singled out renters who were indirectly being penalized. If the tax break were given only to owner-occupied dwellings then this in effect would be a discrimination against renters. It seemed the majority of Council members favored confining the break to owner-occupied dwellings though we would also opine that some members were not certain in their opinion,

But no objection to imposing a sales tax
But there seemed no objection to imposing a sales tax. As Council member Thurmond first pointed out, there are 4.5 million tourists that visit Charleston each year. They came to see the charm of Charleston. It seemed appropriate to shift the burden off the homeowner. And as Council member McKeown pointed out, these tourists accounted for about 30-32 % of the proceeds from the half-cent sales tax first levied about 2 years ago. We would also add that tourists come to Charleston largely to see the historic district of the City. Taxes on the homes in the Historic District have been among the fastest growing in the County. The cost of maintaining an old house is not negligible. As the owners of these houses are indirectly responsible for the large tourist draw, it seems fair they be favored for a tax break. (Disclosure - the writer owns and lives in a house downtown!)

Millage increases possible in 2008
As County Administrator Canterbury stated, this was not the start of the 2008 budget process. It was more a background. For those following Council meetings, there really were no surprises, at least nothing major. But there seems a strong likelihood of a millage increase in 2008, albeit a small increase.

County in line with 2007 budget at half year
First the good news - a mid-year review of the 2007 budget indicated that costs and revenues were broadly in line with budget. Revenues derived from the RMC office were down about $0.9 million because of fewer property transaction but these were offset by higher property tax revenues. There had been an overall increase in budgeted costs of $7 million but these had been offset in savings in other areas. Staff noted that the biggest savings resulted from inability to fill vacant personnel positions within the County. This issue was discussed later in the session.

But 2008 will be tight
The bad news was that the 2008 budget will be tight. As the Administrator had pointed out earlier, the County has to balance its budget. It has no other option.

In summary, a preliminary look at the General Fund indicated a $7 million increase in revenue, largely reflecting increases of $3 million in the Local Option Sales Tax and $1.5 million in property taxes. However, this will be more than offset by $21.5 million increase in expenses. This increase reflects increases of $11 million in the cost of existing services, $1 million in Legislated costs and $9.5 million in the expansion of existing services.

Millage increase possible
Staff speculated as to what could be done to close the potential budget gap- fees could be raised, the assessment ratio for boats amended although the impact was not certain, or property taxes raised. The later could be only about 1.6 mills, representing the percentage increase in the Consumer Price Index and population, as mandated by the state. And as for the Debt Service Fund, staff had only one suggestion, lift the millage rate by 1.6.

Chairman Scott declared his strong opposition to a tax increase. Other members did not express their views though Council member Pryor, later in the meeting, indicated that he would vote for a millage increase rather than let public safety be jeopardized.

Compensation Philosophy – draws some fire
The newly staff crafted Compensation Philosophy for the County was discussed last night. We referred to it in a note on February 22. The main points were:

• Top 75% of wage earners to be paid at market
• Bottom 20% of wage earners to be paid slightly above competitive levels
• Replace the five year Retain Employees of Value (REV) increase plan with a more frequent longevity increase plan
• Replace Retained Employee of Value (REV) with longevity system
• Reward performance
• COLA increase given to all employees.

Staff in discussing the ramifications of the philosophy also gave some estimates of the costs of implementing all the changes. These amounted to over $8 million and included one time costs and the annual COLA adjustment.

Discussion should be on philosophy not policy
Chairman Scott stated the discussion was over philosophy not policy. The latter would follow the former. Council members Bostic and Condon sort of said the same thing. It was up to Council to define philosophy and for staff to define specifics. Other members of Council did not think it was so simple.

Some Council members look more to merit based system
The discussion came late in the evening and was long, and irritating to some Council members who thought that defining a philosophy should be easy and should not be hung up on implementation. Council members Schweers and Thurmond were not happy about the philosophy as defined by staff. They thought that pay should be largely performance driven and that COLA adjustment should not be automatic. They were probably particularly offended by the proposed automatic 3% increases in pay at the end of years 1, 3 and 5 and the 6% increases in years 7 and 10. Presently, under the REV scheme, the first automatic increase in County pay is at the end of year 5.

Staff indicated a desire to move more to a performance based pay scale, but what it proposed was a transition to a “merit” system. Performance had to be defined and this would take time, Council was told.

Large number of unfilled positions
What we found interesting was the fact that there were a large number of positions within County staff that were vacant and for which there were few applicants. Staff reported that staff turnover was 13% a year which is not high by industry standards. But despite the low figure, there were 43 unfilled positions at the Detention Center, and more in other Law Enforcement areas. Staff noted that turnover was at the low end of the wage scale. Many applicants would stay with the County for 2 years and with the experience under their belt, would leave for more rewarding positions. As Chief Lucas noted, the shortage of personnel led to greater attrition of those remaining. In the law enforcement divisions, personnel had to work harder to cover all the duties of the department. Sometimes this became too much.

The inference was clear- the County needs to pay more for the lower level positions! And as Council member Pryor exclaimed as he wandered from philosophy to implementation, the County’s public safety should not be jeopardized even if it means a millage increase!

Staff noted that the lower 20% of County employees (about 500) were earning between $8 and $16 an hour. They were in custodian position or construction maintenance largely.

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