Act 388
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ACT 388. PROPERTY TAX REFORM. John Butler Chief Financial Officer Lexington Co. School District No. 1 Lexington, SC. Theodore B. DuBose Attorney Haynsworth Sinkler Boyd, P.A. Columbia, SC. At A Glance. Passed in 2006 Effective June 1, 2007, increased the state sales tax by 1 cent

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ACT 388

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Act 388

ACT 388

PROPERTYTAX REFORM

John Butler

Chief Financial Officer

Lexington Co. School District No. 1

Lexington, SC

Theodore B. DuBose

Attorney

Haynsworth Sinkler Boyd, P.A.

Columbia, SC


At a glance

At A Glance

  • Passed in 2006

  • Effective June 1, 2007, increased the state sales tax by 1 cent

  • Reduced the sales tax on unprepared foods (All sales tax on unprepared foods was subsequently eliminated)

  • Provided an exemption of owner-occupied residential property from school operating millage

  • Created the Homestead Exemption Fund

  • Placed a limitation on millage rate increases for all local governing bodies


Homestead exemption fund hef

Homestead Exemption Fund(HEF)

  • Proceeds from the additional penny sales tax are credited to a fund separate and distinct for the state general fund

  • The Board of Economic Advisers shall make an annual estimate of the receipts by the HEF by February 15

  • This estimate must be provided to the legislature and each school district and county


Homestead exemption fund hef1

Homestead Exemption Fund(HEF)

  • In 2007, additional legislation created three “tiers”:

    • Tier I is the amount received by a district for the first $100,000 of assessment on owner-occupied property

    • Tier II is the amount a district receives for the first $50,000 for taxpayers age 65 or older or those totally and permanently disabled

    • Tier III, for FY 2007-08, consists of an amount equal dollar for dollar to the revenue that would be collected by the district from property tax for school operating purposes imposed by the district on owner-occupied residential property for that fiscal year as if no reimbursed exemptions applied reduced by the total of the district's tier one and tier two reimbursements


Distribution of revenue

Distribution of Revenue

  • Beginning with FY 2007-08 school districts were reimbursed for the actual amount that was to be collected from school operating millage imposed on owner-occupied residential property

  • Beginning with FY 2008-09 the aggregate reimbursements are increased annually by an inflation factor equal to the percentage increase in the CPI, SE Region plus the percentage increase in the population of the State as published by the Office of Research and Statistics multiplied by the prior year’s total reimbursements

  • An additional add-on weighting for poverty of .20 was added to provide additional revenues for students in K-12 who qualify for Medicaid or are eligible for free and/or reduced lunches


Distribution of revenue continued

Distribution of Revenue (Continued)

  • Beginning with FY 2008-09 , a school district receives reimbursement for the amount received in prior year plus a proportionate share of the increase above based on of district’s WPU’s as a percentage of statewide WPU’s

  • Any county that did not raise a minimum of $2.5 million from school operating millage must receive and additional reimbursement from the HEF to bring the reimbursements to districts in that county to at leas $2.5 million

  • Multi-district counties qualifying for the additional reimbursement would split the funds based on 135 Day ADM of the district divided by the total ADM of all students of the districts in the county

  • Any funds remaining after all of the above obligations have been met must be distributed to counties for a credit against county operations on owner occupied property taxes


Millage limitation

Millage Limitation

  • A local governing body may increase millage for general operating purposes above the rate for the previous year only to the extent of the increase in the average CPI for the most recent 12 month period, plus the percentage increase in the previous year increase in the population of the entity

  • Negative population growth was later amended to be zero for purposes of this computation

  • The millage rate limitation may be suspended and the millage rate may be increased upon a 2/3 vote or the local governing body, but only for 5 purposes stated in Act 388

  • The restriction does not affect millage for levied for bonded indebtedness or used to maintain a reserve account


Five authorized purposes for suspending the millage limitation

Five Authorized Purposes for Suspending the Millage Limitation

  • The deficiency of the preceding year;

  • Any catastrophic event outside the control of the governing body such as a natural disaster, severe weather event, act of God, or act of terrorism, fire, war, or riot;

  • Compliance with a court order or decree;


Five purposes for suspending the millage limitation cont

Five Purposes for Suspending the Millage Limitation (cont.)

  • Taxpayer closure due to circumstances outside the control of the governing body that decreases by ten percent or more the amount of revenue payable to the taxing jurisdiction in the preceding year; or

  • Compliance with a regulation promulgated or statue enacted by the federal or state government after the ratification date of this section for which an appropriation or a method of obtaining an appropriation is not provided by the federal or state government.


School districts perspective

School Districts’ Perspective


Growth

Growth

  • Act 388 adversely affects fast growing districts.

  • Act 388 helps slow growing, no growth or declining districts or districts that receive the $2.5 million.


Growing districts

Growing Districts


Declining districts

Declining Districts


2 5 million districts

$2.5 Million Districts


Effect on per pupil revenue

Effect on Per Pupil Revenue

Growing Enrollment Districts

Year WPUs Allocation Per WPU

  • 10,000 $ 20,000,000 $ 2,000

  • 11,000 $ 20,500,000 $ 1,864

  • 12,000 $ 21,000,000 $ 1,750

  • 13,000 $ 21,500,000 $ 1,654

  • 14,000 $ 22,000,000 $ 1,571

  • 15,000 $ 22,500,000 $ 1,500


Effect on per pupil revenue1

Effect on Per Pupil Revenue

Declining Enrollment Districts

Year WPUs Allocation Per Pupil

  • 10,000 $ 20,000,000 $ 2,000

  • 9,500 $ 20,300,000 $ 2,137

  • 9,000 $ 20,600,000 $ 2,289

  • 8,500 $ 20,900,000 $ 2,459

  • 8,000 $ 21,200,000 $ 2,650

  • 7,500 $ 21,500,000 $ 2,867


State funds

State Funds

  • Growing districts receive less state money since their Education Finance Act (EFA) amount is based on their owner-occupied assessments and not the amount they receive from Act 388.

  • Declining districts receive more state money since their EFA amount is based on their owner-occupied assessments and not the amount they receive from Act 388.

  • If there is no change in legislation this year this will correct itself for 2010-11, but there was legislation filed last year that would leave this inequity in place and probably will be introduced again this year.


Millage

Millage

  • Districts are restricted to how much millage they can increase and a mill is worth much less than it was prior to Act 388.

  • The more owner-occupied property a district has, the greater the decline in a value of a mill since owner-occupied assessments are not included in the value now.

  • This also means that any new mills added will be entirely assessed against business and other non owner-occupied property.


Property reclassification

Property Reclassification

  • 2007-08 was the base year where DOR used the owner-occupied assessments and each district’s millage rate to determine the dollar for dollar reimbursement to districts.

  • Some taxpayers that had 6% property in 2007-08, which is still taxed for school operations, reclassified it to 4% property after the base year in order to obtain the 100% exemption from school operating taxes.

  • Therefore, no tax is now collected on it and it is excluded in the amount the state uses to reimburse districts.


Re assessment

Re-assessment

  • The value of property may not be increased by reassessment more than 15%, except in the case of an “assessable transfer of interest.”

  • Legislation debated in 2010 but not passed would have deleted assessable transfer of interest exception.

  • According to a report from the state’s Chief Economist given to Government Finance Officers in December of 2008, this will have a greater adverse effect on school districts than Act 388 in the long term.

  • This was enacted as a result of a constitutional amendment through a state-wide vote by citizens.

  • Bright spot: For the purpose of calculating debt limit, assessed value shall not be lower than 2006 assessed value.


Avoiding the millage cap

Avoiding The Millage Cap

Using Your Debt Limit for

Capital Expenditures


Simple

Simple

  • Counties and municipalities may issue general obligation debt for any corporate purpose.

  • Many counties and cities use general fund millage to fund capital expenditures.

  • Consider using general obligation bond funds, instead of general funds, to fund capital expenditures.

  • Bonds can be issued for short period, keeping interest costs at a minimum.

  • Owing to petition rules, timing is critical.


Not as simple

Not as Simple

  • Act 388 makes it difficult in some cases to engage in lease-purchase financings for equipment and other capital items.

  • Consider using proceeds of general obligation bonds to make payments on lease-purchase agreements.

  • Again, timing is critical.

  • Additional wrinkle for school districts—installment payments.


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