1. CAPS: Creating A Political Swamp for Local Governments A presentation to the City and County Managers Association Anderson, SC January 18, 2008 Holley Hewitt Ulbrich

2. Three Kinds of Caps Assessment capsAssessment caps Millage capsMillage caps Spending capsSpending caps 1/18/08 Anderson City and County Managers Association Slide 2

3. Does South Carolina Have Runaway Government Spending? CPI plus population 2000-2006:CPI plus population 2000-2006: +3.8% a year +3.8% a year Revenue from property taxes 2000-2006:Revenue from property taxes 2000-2006: +6.5% a year Local government spending:Local government spending: +6.9% a year +6.9% a year 1/18/08 Anderson City and County Managers Association Slide 3

4. Does South Carolina Have Runaway Government Spending? Growth of personal income 2000-2006:Growth of personal income 2000-2006: +6% a year Revenue from property taxes 2000-2006:Revenue from property taxes 2000-2006: +6.5% a year Local government spending:Local government spending: +6.9% a year 1/18/08 Anderson City and County Managers Association Slide 4

5. Does South Carolina Have Runaway Government Spending? Huge infrastructure needs in fast growing areasHuge infrastructure needs in fast growing areas SC local government per capita revenue is only 76% of national averageSC local government per capita revenue is only 76% of national average SC state and local government per capita revenue is only 90% of national averageSC state and local government per capita revenue is only 90% of national average 1/18/08 Anderson City and County Managers Association Slide 5

6. The Logic of Caps Housing boom boosted the property tax base and created a revenue bonanzaHousing boom boosted the property tax base and created a revenue bonanza Solution: assessment capsSolution: assessment caps 1/18/08 Anderson City and County Managers Association Slide 6

7. The Logic of Caps, cont. Assessment caps will encourage local governments to raise mill rates if base growth slowsAssessment caps will encourage local governments to raise mill rates if base growth slows Solution: millage capsSolution: millage caps 1/18/08 Anderson City and County Managers Association Slide 7

8. The Logic of Caps, cont. Local governments will respond to millage caps by shifting to other revenue sourcesLocal governments will respond to millage caps by shifting to other revenue sources Solution: spending capsSolution: spending caps 1/18/08 Anderson City and County Managers Association Slide 8

9. Property Tax Base Growth 2000-2005 property tax base grew about 7.5% a year2000-2005 property tax base grew about 7.5% a year 2000-2005 housing units grew faster than population, 1.9% a year2000-2005 housing units grew faster than population, 1.9% a year Average increase in assessed valuation for existing homes, about 7% a yearAverage increase in assessed valuation for existing homes, about 7% a year Five year assessment sticker shock: 40% increaseFive year assessment sticker shock: 40% increase CPI grew only 13.4% over same periodCPI grew only 13.4% over same period 1/18/08 Anderson City and County Managers Association Slide 9

10. A Case Study Homeowner, house worth $150,000 in 2000Homeowner, house worth $150,000 in 2000 Appreciates 7% a yearAppreciates 7% a year Ignore local option sales taxIgnore local option sales tax 1/18/08 Anderson City and County Managers Association Slide 10

11. In 2000 Mill rate of 124.2 for city and counties, total $745Mill rate of 124.2 for city and counties, total $745 Mill rate for schools 144.2, property tax relief, school taxes $289Mill rate for schools 144.2, property tax relief, school taxes $289 Total tax bill is $1,034Total tax bill is $1,034 1/18/08 Anderson City and County Managers Association Slide 11

12. In 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 assessment on cars and depreciation of industrial propertyMill rates went up because of reduced assessment on cars and depreciation of industrial property Mill rate of 129.4 for city and counties, total $1,034Mill rate of 129.4 for city and counties, total $1,034 Mill rate for schools 144.2, no new property tax relief, school taxes $655Mill rate for schools 144.2, no new property tax relief, school taxes $655 Total tax bill is $1,737, a whopping 67% tax increaseTotal tax bill is $1,737, a whopping 67% tax increase 1/18/08 Anderson City and County Managers Association Slide 12

13. Impact is Very Uneven Six counties with double digit average annual increases in owner-occupied residential property in their tax bases Six counties with double digit average annual increases in owner-occupied residential property in their tax bases 1/18/08 Anderson City and County Managers Association Slide 13

14. Effects of Assessment Caps Slowdown in appreciation because of housing slumpSlowdown in appreciation because of housing slump Increasing inequity between taxpayers within and among classesIncreasing inequity between taxpayers within and among classes Effort to repeal market value provisionEffort to repeal market value provision 1/18/08 Anderson City and County Managers Association Slide 14

15. Effects of Millage Caps and 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 get reliefPressure from business community to get relief ITA no longer works for school districtsITA no longer works for school districts 1/18/08 Anderson City and County Managers Association Slide 15

16. Proposed Spending Caps Interfere between willing buyers and sellersInterfere between willing buyers and sellers 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! 1/18/08 Anderson City and County Managers Association Slide 16

17. A Legislative Agenda Resist spending capsResist spending caps Backup plan to minimize harm of spending capsBackup plan to minimize harm of spending caps 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 1/18/08 Anderson City and County Managers Association Slide 17