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Charleston mulls if it can use $20M in stimulus funds to undo tax increase

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Charleston City Council

During a March 23 City Council Zoom meeting, pictured in this screenshot, officials discussed whether or not they can use $20.7 million in stimulus funds to reverse a property tax increase that was passed last year. 

The city of Charleston is set to receive nearly $21 million in federal coronavirus stimulus funding but city officials are unsure if they can use it to reverse a local property tax increase passed late last year.

The money was awarded to Charleston as part of the $1.9 billion stimulus package approved by Congress in early March. As part of that legislation, lawmakers allocated roughly $350 billion to help shore up the finances for local, state and tribal governments throughout the country.

The intent is to help those bodies recover from the coronavirus pandemic, which strained parts of the economy and led to dips in local tax revenue.

Charleston was not immune from the financial pressures. A decline in tourism and business-related tax revenue led the City Council in December to cut millions of dollars in city spending to help balance its budget.

In a split vote, the council members also reluctantly decided to raise property taxes to bring in an extra $3.2 million this year and avoid furloughing city employees, including firefighters and police officers.

That tax hike is expected to increase the bills for property owners in Charleston this year anywhere from $24 to $72 depending on the size of the home and whether the property is rented or owner occupied.

At the time, many of the council members who voted in favor of the tax increase said they would reverse that decision if the city received financial assistance from the federal government.

Councilman Harry Griffin, who represents outer West Ashley, wanted an answer from his colleagues this week on whether they would follow through on that promise now that the federal funds are on the way.

"We said that if we got federal funding we would roll back the tax increase," said Griffin, who voted against the tax increase in December.

The city's staff, however, informed the council at the March 23 meeting they needed more time to determine if the stimulus funds could be used in that way.

Amy Wharton, Charleston's chief financial officer, said the problem is the federal stimulus bill bans states from using the money to "directly or indirectly" offset a reduction in tax revenue.

The same language does not specifically apply to the money given to cities like Charleston, but Wharton said that is still a gray area that is up for dispute. If the council were to use the money to offset its property tax increase now, she said the city would run the risk of violating the law and could be forced to pay back all of the federal funds.

That's not something City Council members were willing to risk this week.

"You'd literally have to cough the money back up and return it to the federal government," Mayor John Tecklenburg said. "We just need to be prudent and careful about that before we make any firm decisions."

"I'm very concerned that we would make a wrong assumption on that," added Councilwoman Carol Jackson, who represents James Island.

Susan Herdina, an attorney for the city, told council members they may need to wait until the city receives more legal guidance from the federal Department of Treasury. She noted that more than 20 state attorneys general, including South Carolina's Alan Wilson, raised issues with the restrictions Congress placed on the federal stimulus funds.

The outcome of those legal disputes could also help to determine whether the city can use the federal money to reverse its earlier property tax increase, which will show up in people's bills this fall.

The council members plan to discuss the issue further at upcoming committee hearings, and many of them emphasized that they planned to roll back the property tax hike, if they can. 

"Let's get the answers that we need to receive. I'm not wavering from my commitment on this," said Councilman Peter Shahid, who represents part of West Ashley.

Reach Andrew Brown at 843-708-1830 or follow him on Twitter @andy_ed_brown.

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