SUNDAY, DECEMBER 03, 2006 7:35 AM

Grass-roots group took on tax reform - and won
BY ROBERT BEHRE
The Post and Courier

Emerson Read did what many didn't think he, or any other average person, ever could: successfully push for significant reform in the state's property tax system.

As the bite of Charleston County's 2005 property tax reassessment was being felt, Read and several other Lowcountry property owners huddled around a table inside a Broad Street savings and loan and began plotting fundamental statewide changes in how government taxes their homes.

"We can do it," Read told them. "The people are stronger than the politicians."

Read, 81, would spend the next 16 months away from his real estate work. He would spend thousands of dollars of his own money on radio and newspaper advertisements aimed at reluctant lawmakers. He would make scores of trips to Columbia to sit in the gallery and watch things unfold. True, he had a lot of company, including Charleston residents such as Lanneau Siegling and scores of supporters in the Upstate and in Lexington County.

"This was grass roots," Read said. "You know the very wealthy don't give a damn. They can pay the taxes. We had people sending in a $5 bill or a $10 bill with a little note saying, 'We wish we could have sent more.' I wish I could send them the money back."

While some might argue that Read has gotten too much credit, Speaker of the House Bobby Harrell said Read "helped a lot because he came up here and helped articulate, from a homeowner's point of view, how important it was to deal with the issue."

Read's group didn't get its first wish, which would have raised the state's sales tax rate by 3 percent in exchange for abolishing all property taxes.

But they did convince lawmakers to raise the sales tax by 1 percent, beginning in June 2007, and to eliminate the school operations portions of property tax bills, beginning next fall. That will cut most property tax bills by 50 percent. Also, the 1 percent increase allowed the state to cut the sales tax on certain groceries to 3 percent, a change that began in October. It also imposed spending limits on local government, created the recent sales tax holiday after Thanksgiving, and allowed property owners to pay their property taxes in installments.

And there was more: They convinced lawmakers to pursue a constitutional change that would limit reassessment increases to 15 percent, a change that voters passed by a 7-3 ratio last month.

Read noted that the reassessment cap passed in every one of the state's 46 counties, winning a high of 79 percent in York County below Charlotte, while squeaking by with 51 percent in Union.

While that amendment will help curb future increases on rapidly appreciating property, Read said the biggest victory is the property tax reduction that will take effect next year.

The savings will vary. The owner of a home worth $100,000 in Berkeley County might save only about $240 in property taxes while paying higher sales tax, while the owner of a $1 million home in Charleston can expect to save more than $3,000. One analysis found that the average Lowcountry homeowner will save between $200 and $500 on his annual property tax bill, minus whatever extra he spends on sales tax.

Read stands to see a significant reduction in taxes on his King Street home, which he bought for $45,000 four decades ago and which is now valued at $1.3 million. His tax bill tops $10,000.
Still, he is not in a mood to celebrate. He said some of his neighbors in downtown Charleston are selling their homes because the tax relief will come too late. "They can't afford to wait," he said. "They're proud people, and they don't want to admit they have to sell their properties."
Not everyone is a fan of the changes.

Holley Ulbrich of Clemson University's Strom Thurmond Institute serves as the tax policy specialist for the League of Women Voters of South Carolina. She said this year's tax reforms are "possibly not the most carefully thought out and thoroughly vetted legislation that the General Assembly has ever passed."

She said homeowners whose homes are valued at more than $100,000 will benefit, but owners of less expensive homes, renters and businesses are the losers. The problem lawmakers wanted to tackle - cases where property tax bills were rising much faster than owners' ability to pay them - was genuine. Either the sales tax increase or the reassessment change would have addressed that, she said.

"They took A and B, so it's kind of overkill," she said.

City and county governments won't be able to get the same amount of property tax revenue after a reassessment, and they're expecting to urge lawmakers to address that problem this year, said Howard Duvall, director of the S.C. Municipal Association.

"We will always have a deficit the year after reassessment," he said. "It affects everybody."

The legislation also restricts cities from raising their tax rates more than the inflation rate, plus a percent of their population growth, in any given year. If they don't raise the tax rate in a year, they lose the ability to do so later. Duvall said while the change is geared to prevent large tax increases, it could create many more smaller ones.

Read said when lawmakers reconvene next month, those who pushed for tax reform will be keeping an eye on government spending to ensure that the hard-won tax breaks remain in place.

But he also plans to return to a more normal life and not make as many trips up Interstate 26.
"This consumed all of my time for 16 months," he said. "In a campaign like this, there's always something else to do. We were determined to get this thing, and we did."

Reach Robert Behre at rbehre@postandcourier.comor 937-5771.

Public Pressure Played Role in Outcome

How Tax Reform Prevailed

S.C. lawmakers’ perseverance, compromise and a late dinner sealed the deal

By JOHN O’CONNOR

Sunday, June 4, 2006

johnoconnor@thestate.com

• HOW CHANGES WILL WORK
• WHAT WILL CHANGE

The seeds of statewide property tax change were sown long before a hybrid plan emerged on the back of a chicken box in the General Assembly’s final days.

They included:

•  A new speaker of the House and other House members aiming to make their marks

•  A Union County land deal that forged a key working relationship between two legislators

•  Accelerating demographic trends that created dramatic changes in coastal real estate values.

All played a role and — mixed with the spotlight of an election year — gave life to tax changes that will affect every South Carolinian.

Still, some of the plan’s most ardent supporters doubted a deal could be done.

“In a huge change like this, there’s so many things that can go wrong,” said Rep. Bill Cotty, R-Richland.

Reducing property taxes for homeowners was the issue for many lawmakers this year. Still, proposals to cut those taxes faced an up and down path. After sailing through the House in March, the Senate worked out details in fits and starts. Ideas were scrapped daily.

Business, school and local government lobbyists also took aim at the various proposals, concerned about their impact. More than once the plan appeared to be on life support.

The House and Senate proposals that landed in a conference committee were so different that many observers saw no way to reconcile them.

In the end, it took a dinner detente to work out a compromise, with final approval coming by just two votes.

THE PLAYERS

South Carolina has cut homeowners’ property tax bills before, in the mid-’90s. But a decade later, the state’s annual appropriation to offset property taxes was having less of an impact. The relief provided individual homeowners’ property tax bills was flat and overall bills were growing.

Recent proposals — such as the Quinn-Sheheen plan to make the state responsible for all school funding — had failed to sway a majority of lawmakers.

But spikes in property values in some high-growth areas — as some of the state’s largest counties finished required once-every-five-years reassessments — drove key House and Senate lawmakers to act.

Both houses formed special panels to draft property tax plans last summer. Citizens organized into a statewide network, spending long hours at the State House and blistering reluctant lawmakers with e-mails and radio ads.

In that climate, the personalities of House and Senate members working on a compromise played a role, Cotty said.

•  Cotty came in as a public school advocate who also worked to remove the Confederate flag from the State House dome. After nearly a year working on the tax issue, Cotty could recite the numbers and impact on school districts by memory. He was the choice of former Speaker David Wilkins, R-Greenville, to study the issue, but maintained the confidence of Bobby Harrell when the Charleston Republican became speaker last year.

•  House Majority Leader Jim Merrill, R-Charleston, and Rep. Annette Young, R-Dorchester, were the pit bulls for the House position. The two worked to keep House members together as time ticked down on the session. Merrill, who owns a public relations firm, says he is not afraid to “call a spade a spade,” a habit Cotty said he had to work to subdue.

•  Rep. Michael Anthony, D-Union, was Cotty’s choice for the Democratic member on the final property tax House-Senate negotiating panel. The two formed a trust two years ago when Cotty brokered a land purchase for the Union County school district, where Anthony works. Cotty felt Anthony was the best channel back to House Democrats. Like Anthony, they were concerned about the impact of any change on school funding and how an accompanying sales tax hike would affect the state’s poorest residents.

•  On the Senate side, Finance Chairman Hugh Leatherman, R-Florence, and Sen. Larry Martin, R-Pickens, were the key skeptics. They worried about the impact a change would have on businesses and schools. House press releases called Leatherman, the Senate’s raspy-voiced master of the budget, the roadblock. However, he helped marshal the 31 Senate votes needed to approve the plan.

•  Sen. Jim Ritchie, R-Spartanburg, was the facilitator, a low-key expert at finding the middle ground. Ritchie is well-respected in the Senate, and House members said they have as good a relationship with him as anyone in the Senate. Every time the tax plan bogged down in the Senate — in the Judiciary Committee, on the floor, in conference — Ritchie was in the middle of trying to work out a compromise. It was his proposal on how to spend the sales tax increase that finally was accepted by the House.

But no one was associated with tax relief more than newly chosen House Speaker Bobby Harrell, R-Charleston.

“He basically said, ‘I’m going to bet my speakership on this single issue,’” Cotty said.

Harrell gave Cotty and the House committee studying property tax reform their marching orders: Keep it simple, fix the problem and keep it fixed. That outline set the House’s direction toward a plan to increase the state’s sales tax by 2 cents on the dollar. In return, the House plan would strip all county and school operating taxes from owner-occupied homes.

Harrell said the impact on families motivated his push for change. Even when Senate leaders called his plan “dead on arrival,” Harrell said he knew a proposal would get through the Legislature.

“Speakers come and go, and issues come and go” Harrell said. “I just think the issue was critically important to the state.”

Senators thought the issue important, too, but could not reach consensus. In early May, after weeks of wrangling, the Senate passed a plan that would allow counties to raise local sales taxes to lower property taxes. There was no statewide component to the plan, and most counties could not practically raise sales taxes enough to eliminate property taxes.

THE DINNER

Leatherman said the gulf between the House and Senate plans worked to foster an agreement. Because the sides were so far apart, Cotty and Leatherman worked from scratch, confident lawmakers would vote to give them the authority to do so.

“Pure negotiation,” Leatherman said. “The two bills were so far apart.”

Talks began the afternoon of May 22, with the House and Senate laying out “deal breakers:

•  The Senate could not accept more than a 1 cent sales tax increase. The House wanted school operations — about two-thirds of a typical homeowners’ bill — removed from property taxes.

•  The House wanted a guarantee taxes could not go back up on homes. Two-thirds of senators would not vote for a constitutional amendment needed for that guarantee.

•  The House wanted residents to get a break on their grocery taxes. The Senate wanted property owners to get a break on their county government taxes.

For two days, property tax negotiators huddled with staff in small rooms at the Gressette and Blatt office buildings. Lobbyists, tax reform advocates and others camped out in the lobby waiting on word that a conference committee meeting was scheduled.

On May 24, the House unveiled a counter-offer, one that conceded a handful of Senate positions, such as a 1 cent-on-the dollar sales tax increase and a 15 percent cap on reassessed home values over five years.

But Wednesday evening, the Senate responded, rejecting nearly every key point in the House plan.

Harrell stepped in, meeting Leatherman for dinner at the Palmetto Club and brokering the final plan’s outline.

Harrell made it clear the House would not flinch: It wanted a sales tax increase to remove school taxes. It wanted a guarantee the school tax cut would be permanent. It wanted a sales tax cut on groceries.

With lines drawn, Harrell and Leatherman worked out a framework over dinner.

The next day, negotiators quickly began working out a final plan, with a couple of Senate suggestions key to drawing support.

In a back room, without any paper, Cotty tore a piece off a Bernie’s Broasted Chicken box and began to balance the plan.

The plan would tap $180 million in expected revenue that had been added, but not spent, to the state’s budget by economic forecasters. That money would pay for a cut in the sales tax on groceries and pay some county property taxes. The cuts cannot be repealed unless two-thirds of the House and Senate vote to do so, a key compromise made to satisfy House members.

Cotty quickly subtracted out all the costs, such as replacing school money lost by cutting the sales tax on groceries, and found $15 million left. Leatherman was pleased, and the two agreed to use that money — and $55 million from another source — to reduce the county operating portion of property tax bills.

The plan was approved Thursday night.

“I think the parties were always closer than press releases indicated,” Ritchie said. “There was an openness to crafting a comprehensive plan.”

The deal was not yet done. House leaders continued to hold up the state budget until the Senate gave its final approval to the property tax plan.

Some Senate Democrats tried a last-minute push to hike the cap on property increases to 20 percent from 15 percent. A larger cap, they said, would be fairer to owners of moderately priced homes.

Twice the Senate voted on the needed constitutional amendment; both times, it failed to get the needed 31 votes. But, when it became clear the House would not budge on increasing the cap, two senators switched their votes. Thirty-two senators had voted in favor of the amendment, clearing the last hurdle to tax relief.

THE FUTURE

It remains to be seen if lawmakers have succeeded in their goal of property tax relief or if that relief will prove fleeting.

Businesses complain bitterly they pay the majority of taxes, and the property tax plan gives them no relief. Businesses also say the increase in sales taxes will make them less competitive with firms in neighboring states that pay lower sales taxes.

School districts are worried about the restrictions on their ability to tax. In addition, if state revenues fall, those districts might be shortchanged.

“The proof’s in the pudding when you look at it 10 years down the road,” Anthony said.

Cotty, Leatherman, Merrill and others feel the legislation is a first step toward finding a fairer way to pay for state schools. The bill targets more state money to the poorest school districts.

Merrill said success on the property tax issue makes it more likely lawmakers will accept the challenge of addressing the fairness of the state’s school funding formula, which has been challenged in court.

“This has the potential of being a seminal piece of legislation,” Merrill said. “The General Assembly does not act unless it was compelled to ... it’s so much easier to just stand still instead of doing something.”

Reach O’Connor at (803) 771-8358

CHANGES TO PROPERTY TAX

H. 4449
Property tax swap
Effective Date--October 1, 2006 for decrease of sales tax on food;
June 1, 2007 for 1% increase in sales tax;
January 1, 2008 for reimbursement to school districts
January 1, 2007 for millage caps on local governments
Ratification of constitutional amendment for caps on reassessment values

    This act decreases the sales tax on groceries from 5% to 3%, effective October 1, 2006, using money from the General Fund. Beginning in June 2007, it increases the sales tax by 1% on everything, except accommodations, groceries, and items with a maximum sales tax cap. In exchange, 100% of the fair market value of the property taxes for school operations is removed from homesteads, and a 2/3rds majority vote of each legislative body is required to override this exemption.

    Beginning January 1, 2008, school districts will be reimbursed from the Homestead Exemption Fund based on the amount of property taxes that would have been collected. The Homestead Exemption Fund will contain funds from the $100,000 school operating relief fund and the school operation portion from the $50,000 homestead exemption for those over 65. School districts will be reimbursed dollar-for-dollar in FY 2007-08. Beginning January 1, 2008, aggregate reimbursements will be increased by the Consumer Price Index (CPI) and population of the State increases from the previous year, and then the funds will be distributed back to school districts based on the weighted pupil units (WPUs) with an add-on weight of .20 for eligible poverty students. Each county will receive no less than $2.5 million for the school districts within the county. If there are multiple school districts within a county, then the reimbursement from the $2.5 million threshold will be based on the 135-day average daily membership (ADM). The General Fund will be responsible for any shortfalls for the WPU disbursements and the $2.5 million threshold amounts.

    If funds remain in the Homestead Exemption Fund after school district distributions, hen counties receive a distribution for a credit against county operations on homesteads. The reimbursement to the county is based on the proportion of a county population to the State population. The county is to credit the taxpayer based on the reimbursement received divided by the number of county parcels eligible for the credits. This reimbursement is not mandatory and is contingent upon availability of funds in the Homestead Exemption Fund.

    Beginning January 1, 2007, millage caps are in place for all local governing bodies, which includes school districts. The millage caps allow local governments to increase millage rates only by the increase of the CPI and the population increase of the entity from the year before. The local governing body can exceed this cap only by a 2/3rds majority vote of the membership of the local governing body, and only for specific purposes, which include the following: (1) deficiency from previous year; (2) natural disaster or act of terrorism; (3) compliance with a court order; (4) closure of a business that decreases tax revenue by more than 10%; or (5) compliance with an unfunded state or federal regulation mandate. If the millage cap is exceeded, then the additional tax must be listed as a separate surcharge. The millage cap does not apply to revenues, fees, or grants not derived from the ad valorem tax millage or to the receipt or expenditure of state funds. All existing tax increment financing agreements (TIFs) are to be paid from the funds that would otherwise have been payable to the taxing entities with respect to the owner-occupied residential real property located within the TIF area.

(If not appealed, distribution remains the same.)

    Counties with an existing local option sales tax can hold a referendum at the same time of the general election in November 2006 to repeal the existing local option sales tax. A county council ordinance or public petition, signed by at least 5% of the qualified electors, must be verified at least 60 days before the general election. If repealed, the local option sales tax is repealed as of January 1, 2007. If not repealed, then local option sales taxes enacted to pay for school operating costs will have the amounts that would have been credited to owner-occupied school operating expenses credited instead to other classifications of property.

     A new local option sales tax may also be enacted by a county through an ordinance or petition signed by 7% of the qualified electors in the county. This local option may provide a credit for school operating expenses, county operating expenses, or both. It will be applied to all classifications of property with the exception of fee-in-lieu agreements. The act has provisions for distributions to school districts where more than one school district exists within a county and also for distributions to school districts where a school district is comprised of parts of multiple counties. Local option sales taxes that are used for school operating expenses are included in the local revenue used to calculate the Education Improvement Act (EIA) local maintenance of effort.

    A tax holiday held on November 24 and 25, 2006 applies to all items currently taxed under Chapter 36 of Title 12 of the South Carolina Code, except for accommodations taxes or any local sales or use tax.

    A joint sales tax exemption review committee is established that, by no later than 2010, will have examined all of the sales tax exemptions and will make recommendations for changes to the existing laws. The review occurs every 10 years.

    Counties are able to enact ordinances that will allow new property to be placed on the county tax rolls within 1 month of receiving a certificate of occupancy. For improved properties, those listed before June 30 th will have taxes due by December 31 st of that year, and those listed after June 30 th will have taxes due when the property tax bill is due the next year. Municipalities within a county enacting such an ordinance have the same requirements.

    Beginning after tax year 2006, counties may enact ordinances that will allow a taxpayer to pay real property taxes by installment. There are notification requirements for both the taxpayer choosing this method and the county that enacts this ordinance. The installment payments are based on the total property tax due for the previous tax year and payments can be made in 6 separate payments, ending on January 15 th of the following year.

    This act also restricts alternative financing methods for funding bonded indebtedness by providing that the financing requirements for bonded indebtedness apply to installment payment contracts to be paid by school districts or other political subdivisions when those installment contracts are to finance the acquisition, construction, renovation, or repair of school facilities.

    Finally, some provisions in this act are contingent upon passage of a constitutional amendment that limits reassessment increases of real property to no more than 15% over a 5-year period of time, unless an assessable transfer of interest occurs. These provisions will provide the procedures to determine the fair market value of real property and the procedures to determine when an assessable transfer of value will occur. Many of the transfers that do not trigger a change in assessment mirror the provisions of the federal Internal Revenue Code that exempt certain types of transfers from changes in federal taxes. The Department of Revenue (DOR) will be responsible for promulgating regulations to implement these provisions, and DOR has been authorized to examine the substance and not merely the form of the transfer in determining when an assessable transfer of interest has occurred. Real property owners will be required to sign certificates accompanying real property tax notices that no assessable transfer of interest has occurred. Civil penalties in the amount of no less than twice the taxes due and no more than three times the taxes due may be enforced against a property owner who knowingly falsifies information on the certificate.

Taxpayers will be given more time to challenge assessments in years when there is no property reassessment. Instead of having to file an objection by March 1 st of each year, the taxpayer will have 90 days after the tax notice is mailed to object to the assessment. Lastly, counties and municipalities receiving state aid will be required to file their financial reports by November 15 th of each year with the Budget and Control Board, Office of Research and Statistics, Economic Research Section. This office also will be responsible for collecting, maintaining, and compiling the financial data received from the counties and municipalities into a comprehensive report to submit to the General Assembly each year.

H. 4450

15% cap over 5-year period on reassessment increases to real property
Effective Date-Becomes effective upon voter approval in November 2006 and ratification of the General Assembly

Press Release

For Immediate Release

 NoHomeTax.org Supports Bill to Reduce Property Taxes

Statewide Property Tax Groups Say They Will be Back

Next Year to Finish the Job of Eliminating Property Taxes

Columbia, South Carolina –May 31, 2006: Emerson B. Read Sr., Chairman of NoHomeTax.org, a statewide coalition of property tax relief organizations, issued the following statement urging members of the Senate and House to support the conference committee report to reduce property taxes:

“Based on this bill, the homeowners of South Carolina will see their property tax bills on owner-occupied homes reduced by an average of 60%. As a result, NoHomeTax.org supports the conference committee report,” said Read. “I encourage all of our members to contact their legislator today, and ask them to support this bill, which will eliminate the school operating portion of their tax bill; I’d also ask that they thank the legislators who helped support our efforts.”

In addition, the bill will also allow South Carolinians to enjoy an annual savings of $120-million dollars at the grocery store, thanks to the reduction of sales tax on food. There will also be roughly $16-million dollars a year in savings with the new tax-free holidays in November, and hundreds of millions of dollars in tax savings on owner occupied homes.

“Our members will be back next year for the complete elimination of property taxes from our homes and our vehicles,” Read said. “As we have said from the beginning, we also want to make sure the business community and industry are protected, and we will continue to support their efforts.”

Legislators did not approve the constitutional amendment to guarantee these savings but did agree to require a two-thirds vote by the General Assembly to make any changes to this bill. NoHomeTax.org, with its tens of thousands of members statewide, will continue to fight for further tax relief recognizing both House and Senate members will be up for re-election in 2008.

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