CAPS: Creating A Political Swamp for Local Governments A presentation to the City and County...

CAPS: CAPS: CCreating reating AA PPolitical olitical SSwampwampfor Local Governmentsfor Local Governments

A presentation to the A presentation to the City and County Managers AssociationCity and County Managers Association

Anderson, SCAnderson, SCJanuary 18, 2008January 18, 2008

Holley Hewitt UlbrichHolley Hewitt Ulbrich

Three Kinds of CapsThree Kinds of Caps

• Assessment capsAssessment caps

• Millage capsMillage caps

• Spending capsSpending caps

1/18/08Anderson City and County Managers

Association Slide 2

Does South Carolina Have Does South Carolina Have Runaway Government Runaway Government

Spending?Spending?• CPI plus population 2000-2006:CPI plus population 2000-2006:

+3.8% a year+3.8% a year

• Revenue from property taxes 2000-Revenue from property taxes 2000-2006:2006:


• Local government spending:Local government spending: +6.9% a year+6.9% a year


Association Slide 3

Does South Carolina Have Does South Carolina Have Runaway Government Runaway Government

Spending?Spending?• Growth of personal income 2000-2006:Growth of personal income 2000-2006:

+6% a year+6% a year

• Revenue from property taxes 2000-Revenue from property taxes 2000-2006:2006:


• Local government spending:Local government spending:+6.9% a year+6.9% a year


Association Slide 4

Does South Carolina Have Does South Carolina Have Runaway Government Spending?Runaway Government Spending?

• Huge infrastructure needs in fast Huge infrastructure needs in fast growing areasgrowing areas

• SC local government per capita SC local government per capita revenue is only 76% of national revenue is only 76% of national averageaverage

• SC state and local government per SC state and local government per capita revenue is only 90% of national capita revenue is only 90% of national averageaverage


Association Slide 5

The Logic of CapsThe Logic of Caps

• Housing boom boosted the property Housing boom boosted the property tax base and created a revenue tax base and created a revenue bonanzabonanza

• Solution: assessment capsSolution: assessment caps


Association Slide 6

The Logic of Caps, cont.The Logic of Caps, cont.

• Assessment caps will encourage local Assessment caps will encourage local governments to raise mill rates if governments to raise mill rates if base growth slowsbase growth slows

• Solution: millage capsSolution: millage caps


Association Slide 7

The Logic of Caps, cont.The Logic of Caps, cont.

• Local governments will respond to Local governments will respond to millage caps by shifting to other millage caps by shifting to other revenue sourcesrevenue sources

• Solution: spending capsSolution: spending caps


Association Slide 8

Property Tax Base GrowthProperty Tax Base Growth

• 2000-2005 property tax base grew about 2000-2005 property tax base grew about 7.5% a year7.5% a year

• 2000-2005 housing units grew faster than 2000-2005 housing units grew faster than population, 1.9% a yearpopulation, 1.9% a year

• Average increase in assessed valuation for Average increase in assessed valuation for existing homes, about 7% a yearexisting homes, about 7% a year

• Five year assessment sticker shock: 40% Five year assessment sticker shock: 40% increaseincrease

• CPI grew only 13.4% over same periodCPI grew only 13.4% over same period


Association Slide 9

A Case StudyA Case Study

• Homeowner, house worth $150,000 in Homeowner, house worth $150,000 in 20002000

• Appreciates 7% a yearAppreciates 7% a year

• Ignore local option sales taxIgnore local option sales tax


Association Slide 10

In 2000In 2000

• Mill rate of 124.2 for city and Mill rate of 124.2 for city and counties, total $745counties, total $745

• Mill rate for schools 144.2, property Mill rate for schools 144.2, property tax relief, school taxes $289tax relief, school taxes $289

• Total tax bill is $1,034Total tax bill is $1,034



In 2005In 2005• Home has appreciated 7% a year to $210,000Home has appreciated 7% a year to $210,000

• Mill rates went up because of reduced Mill rates went up because of reduced assessment on cars and depreciation of industrial assessment on cars and depreciation of industrial propertyproperty

• Mill rate of 129.4 for city and counties, total Mill rate of 129.4 for city and counties, total $1,034$1,034

• Mill rate for schools 144.2, no new property tax Mill rate for schools 144.2, no new property tax relief, school taxes $655relief, school taxes $655

• Total tax bill is $1,737, a whopping 67% tax Total tax bill is $1,737, a whopping 67% tax increaseincrease



Impact is Very UnevenImpact is Very Uneven

Six counties with double digit average Six counties with double digit average annual increases in owner-occupied annual increases in owner-occupied residential property in their tax basesresidential property in their tax bases



Effects of Assessment CapsEffects of Assessment Caps

• Slowdown in appreciation because of Slowdown in appreciation because of housing slumphousing slump

• Increasing inequity between Increasing inequity between taxpayers within and among classestaxpayers within and among classes

• Effort to repeal market value provisionEffort to repeal market value provision



Effects of Millage Caps Effects of Millage Caps and Act 388and Act 388

• Max out cap every year?Max out cap every year?

• Pressure to expand list of exceptionsPressure to expand list of exceptions

• Shift to other revenue sourcesShift to other revenue sources

• Uneven impactUneven impact

• Pressure from business community to Pressure from business community to get reliefget relief

• ITA no longer works for school districtsITA no longer works for school districts



Proposed Spending CapsProposed Spending Caps

• Interfere between willing buyers and Interfere between willing buyers and sellerssellers

• Effect on capital spending?Effect on capital spending?

• Definition of base?Definition of base?

• What happens in a recession?What happens in a recession?

• Look at Colorado!Look at Colorado!



A Legislative AgendaA Legislative Agenda

• Resist spending capsResist spending caps

• Backup plan to minimize harm of spending Backup plan to minimize harm of spending capscaps

• Broaden exceptions to millage capsBroaden exceptions to millage caps

• Work with school districts on ITAWork with school districts on ITA

• Broaden the base of the property taxBroaden the base of the property tax

• Strengthen the sales taxStrengthen the sales tax

• Write on something bigger than a chicken boxWrite on something bigger than a chicken box



CAPS: Creating A Political Swamp for Local Governments A presentation to the City and County...

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