2006 Property Tax Law Wreaks Havoc on School Finances

I don’t typically post editorials, but this one from The Greenville News is worth posting.

Tax law wreaks havoc on school finances
State limited district’s taxing ability but refused to fully replace lost money

May 18, 2008

Questions need to be resolved soon about the Greenville school district’s tax-raising ability. The property tax reform law of 2006 has left school funding policy in tatters, with the Greenville district almost certain to face $7.4 million in budget cuts next year.

The school district is considering a 4-mill tax increase. But the district argues that it should be able to raises taxes by up to 6 mills this year under a cap set in last year’s property tax reform law. In a lawsuit recently filed against the county auditor, the district argues that a 4-mill cap established in a law that affects only Greenville County is unconstitutional.

The immediate concern, then, is a legal one: whether the district has the power to raises taxes by 4 mills or 6 mills. The courts need to make that determination soon.

The Greenville school district should not be uniquely penalized by state law and more strictly limited to 4 mills when much of the rest of the state operates under a more generous set of rules. That would be grossly unfair to the state’s largest district.
But there’s a larger question over state policy: Even if the district were to raise taxes by 6 mills, it would still be in violation of the Educational Improvement Act. That law requires a district to maintain current funding levels per student from one year to the next while factoring in student growth and inflation.

To meet the requirements of that law, the district would have to raise taxes by 12.4 mills. In crafting the 2006 property reform legislation, lawmakers set two laws on a collision course: A formula under the property tax reform law determined a cap of 6 mills for 2008-09 but the Education Improvement Act requires that districts maintain current funding levels per student.

A school district often may not be able to meet the requirements of both laws. The property tax reform law added a 1-cent sales tax to replace homeowners’ property taxes for school operations. Thus, while a school district millage increase wouldn’t affect homeowners, it would hit vehicle owners and owners of commercial and rental properties.

That explains why the millage increase to cover actual growth — 12.4 mills — would be so dramatic. By getting rid of homeowners’ property taxes for school operations, state lawmakers severely limited a school district’s property tax base. By easing the pain on homeowners, the Legislature succeeded in increasing the pain on businesses and car owners.

The fact that the district would need to raise millage so dramatically to accommodate growth underscores a concern expressed by critics last year: that, after cutting homeowners’ property taxes, the state would not fully replace the revenues that schools districts might have reaped from those property taxes.

Clarity is urgently needed on these issues.

In addition, a couple of other things are certain: The Greenville school district often gets criticized for raising millage to accommodate growth, but the district is only following state law and doesn’t deserve the beating it often receives. The other certainty is that state lawmakers, in approving a politically popular but ill-considered 2006 property tax reform law, have created exactly what many critics such as this newspaper predicted: a mess.

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