I read with interest Cindi Ross Scoppe’s recent column on Act 388, highlighting South Carolina’s unique property tax system and how it affects education funding. Ms. Scoppe is correct that South Carolinians pay some of the lowest residential property taxes in the country. In fact, according to an annual 50-state study done by the Lincoln Institute of Land Policy, we rank the lowest for residential property taxes on median-valued homes.
Residential property taxes, a reader told me this week, “have the capacity to destroy families and communities in one fell swoop” because they “are based on what you could sell the house for, but you have not yet realized that gain.” It's a favorite complaint, but it's no longer true, thanks to Act 388, which stripped the fairness from the SC property tax system.
But while we have low property taxes for homeowners in South Carolina, it is just the opposite for job creators and renters.
The Lincoln Institute ranks property tax rates for different classes of property in the most populous cities in each state. Charleston, which recently beat Columbia in population, ranks fourth highest for the effective property tax rate on manufacturing property, explaining the need for local fee-in-lieu-of-tax agreements. FILOTs are unique among the 50 states and not the ideal way to deal with our extremely high rate, but until we create a more competitive property tax climate for our manufacturers — the largest industry sector in the state — we must keep these agreements, however unique they may be.
Charleston also ranks first in the nation for property tax on apartments as compared to residential homes. Renters effectively pay three times more in property tax than homeowners, in part because renters pay for school operations and homeowners don’t. This creates all kinds of questions about fairness, school funding and affordable workforce housing.
These issues, to name a few, are why the S.C. Chamber is working with the South Carolina Realtors on a data-driven study that looks at the state’s broken property tax system and ways to improve it. We have engaged the nationally recognized Lincoln Institute to conduct the study, which will:
•Compare South Carolina to other states. By comparing the Palmetto State with others across the nation, we can further understand how we rank on the spectrum of different types of property tax systems.
•Identify who bears the burden. Understanding how different types of property owners are affected by the property tax is key to reforming the system to achieve better equity. The study will compare property tax rates among counties and how much tax burden has been shifted from residential to business taxpayers.
•Determine the impact of Act 388 on school budgets. Act 388 fundamentally changed how schools are funded; this study examines impacts to school district budgets and state aid to schools.
•Provide reform recommendations. The Lincoln Institute will provide options for reforming South Carolina’s property system, according to all the data received. It will identify the weaknesses and flaws of the current system, then identify reforms that include varying degrees of equity and fairness.
A national ranking shows South Carolina homeowners pay the 6th-lowest property taxes in the nation, a fact that provides useful context as the Legislature attempts to adopt a new funding formula for schools, and school advocates push for the repeal of Act 388's exemption on school operating taxes for owner-occupied houses.
As I speak with business owners and policymakers about tax reform, I hear the same concerns about our property tax structure, including its effects on school funding. They all agree the structure is flawed and needs reform. The time for addressing these flaws is now as the Legislature and the governor begin to tackle the important work of fixing our outdated education funding formula.
This work cannot be effectively done without also looking at how we pay for education. When the Lincoln Institute study is released in December, we hope that the data and recommendations will be a guide to help policymakers enact much-needed reform.
Ted Pitts is president and CEO of the S.C. Chamber of Commerce.