Friday, January 20, 2012
8:30 a.m. – 11:45 a.m.
Government Law Section
3.0 MCLE Credit Hours
Pot Luck, Hors d’oeuvres and Twinkies – A Delicious Dish of Government Law
For government law practitioners, this year’s Government Law Section seminar offers something for
everyone. Judge Carolyn Matthews will kick things off with the dos and don’ts of preparing for and
appearing before the Administrative Law Court. Next, our parade of legal experts will cover the
workings of multi-county industrial and business parks, how to use incentives to attract industry,
consolidation of special purpose districts, and developments in the Freedom of Information Act and
the current status of privacy and the use of employees’ personal electronic devices in the workplace.
Finally, a legislative panel discussion on redistricting issues will cap things off. Plan to spend an
enjoyable and informative Friday morning with us.
Agenda
8:30 a.m. – 9:00 a.m.
Administrative Law Court Rules and Procedure
The Hon. Carolyn C. Matthews, Columbia
9:00 a.m. – 9:30 a.m.
A Walk in the Park: Multi-County Industrial and Business Park—What
are they and how do they work?
Gary W. Morris, Columbia
9:30 a.m. – 10:00 a.m.
Let’s Make a Deal! The Use of Incentives to Attract Industry
April C. Lucas, Columbia
10:00 a.m. – 10:15 a.m.
Break
10:15 a.m. – 10:45 a.m.
Herding Cats—Consolidation of Special Purpose Districts
Gary T. Pope, Columbia
10:45 a.m. – 11:15 a.m.
Employment Law Developments: Freedom of Information Act,
Employee Privacy and Use of Personal Devices in the Workplace
Joan E. Winters, Chester
11:15 a.m. – 11:45 a.m.
Legislative Panel Discussion on Redistricting Issues
Patrick G. Dennis, Columbia
Rep. Jenny A. Horne, Summerville
Rep. Thomas R. Young, Aiken
Course Planner/Moderator: W. Lawrence Brown, Clearwater
A Walk in the Park: Multi-County Industrial and Business Park
What are they and how do they work?
Presentation to South Carolina Bar Convention
Government Law Section
January 20, 2012
I.
Background
a. Industrial parks in the traditional sense (i.e., Saxe Gotha Park, Orangeburg
County/Industrial Park) are not necessarily multi-county industrial parks,
although they may be
b. Form over substance/confusing terminology – a multi-county park under
state law is often a single site owned by a private party (not what you
would think of as a “multi-county park”)
c. Key uses:
i. Special Source Revenue Credits
ii. Job Tax Credits
iii. Funding economic development initiatives
d. Typical structure:
i. Agreement with contiguous county (can be more than one county)
ii. County where property is physically located receives 99% of
property tax payments (or FILOT payments, if applicable) and
bears 100% of expenses
iii. “Partner county” receives 1% of property tax payments (or FILOT
payments, if applicable)
iv. Agreement can cover one parcel (or project) or multiple parcels (or
projects), with amendments to add property over time
v. Typical approval process - each county approves agreement by
ordinance, any applicable municipality approves by resolution
II.
Constitutional and statutory authority
a. State constitution authorizes multi-county parks
Article VIII, Section 13(D): Counties may jointly develop an industrial or
business park with other counties within the geographical boundaries of one
or more of the member counties. The area comprising the parks and all
property having a situs therein is exempt from all ad valorem taxation. The
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owners or lessees of any property situated in the park shall pay an amount
equivalent to the property taxes or other in-lieu-of payments that would have
been due and payable except for the exemption herein provided. The
participating counties shall reduce the agreement to develop and share
expenses and revenues of the park to a written instrument which is binding on
all participating counties. Included within expenses are the costs to provide
public services such as sewage, water, fire, and police protection.
Notwithstanding the above provisions of this subsection, before a group of
member counties may establish an industrial or business park as authorized
herein, the General Assembly must first provide by law for the manner in
which the value of the property in the park will be considered for purposes of
bonded indebtedness of political subdivisions and school districts and for
purposes of computing the index of taxpaying ability pursuant to any
provision of law which measures the relative fiscal capacity of a school
district to support its schools based on the assessed valuation of taxable
property in the district as compared to the assessed valuation of the taxable
property in all school districts of this State. (1972 (57) 3184; 1973 (58) 67;
1989 Act No. 6.)
b. Based on the authority in the state constitution, state statutes provide for
multi-county park agreements
S.C. Code § 4-1-170:
(A) By written agreement, counties may develop jointly an industrial or
business park with other counties within the geographical boundaries of one
or more of the member counties as provided in Section 13 of Article VIII of
the Constitution of this State. The written agreement entered into by the
participating counties must include provisions which:
(1) address sharing expenses of the park;
(2) specify by percentage the revenue to be allocated to each county;
(3) specify the manner in which revenue must be distributed to each of the
taxing entities within each of the participating counties.
S.C. Code § 4-1-170(B) provides that for purposes of the bonded
indebetedness limitation and computation of index of taxpaying ability,
allocation of the assessed value of property within the park “must be identical
to the allocation of revenues received and retained by each of the counties and
by each of the taxing entities within the participating counties”
S.C. Code § 4-1-170(C) requires the consent of any municipality in which
covered property is located
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S.C. Code § 4-1-172 requires that parks consist of contiguous counties (NOTE:
The original multi-county park statute did not require contiguous counties, so
some agreements under prior law include non-contiguous counties.)
c. Property in a multi-county park is subject to payments in lieu of taxes
equal to the ad valorem taxes or other in-lieu-of taxes that would
otherwise apply
NOTE: Payments in lieu of taxes arising from property being included in a
multi-county park are not the same as payments in lieu of taxes or fees in lieu
of taxes under a negotiated FILOT incentive. Thus, the terminology can
become very confusing.
See S.C. Const. art. VIII, § 13(D), supra (“The owners or lessees of any
property situated in the park shall pay an amount equivalent to the property
taxes or other in-lieu-of payments that would have been due and payable
except for the exemption herein provided.”)
d. State law provides for special source revenue bonds (SSRBs)
S.C. Code 4-29-68(A): “A county or municipality or special purpose district
that receives and retains revenues from a payment in lieu of taxes pursuant to
Section 4-29-60, Section 4-29-67, Section 4-12-20, or Section 4-12-30 may
issue special source revenue bonds secured by and payable from all or a part
of such revenues . . . .”
To extend the ability to issue SSRBs with respect to MCIP property, S.C.
Code § 4-1-175 (first paragraph) provides: “A county or municipality
receiving revenues from a payment in lieu of taxes pursuant to Section 13 of
Article VIII of the Constitution of this State may issue special source revenue
bonds secured by and payable from all or a part of that portion of the revenues
which the county is entitled to retain pursuant to the agreement required by
Section 4-1-170 in the manner and for the purposes set forth in Section 4-2968.”
NOTE: S.C. Code § 12-44-70 extends the ability to issue SSRBs to property
subject to a simplified FILOT.
S.C. Code 4-29-68(A)(2)(i) identifies eligible expenditures for which proceeds
of special source revenue bonds may be used: “The bonds are issued for the
purpose of paying the cost of designing, acquiring, constructing, improving, or
expanding (a) the infrastructure serving the issuer or the project, (b) for
improved or unimproved real estate and personal property including
machinery and equipment used in the operation of a manufacturing or
commercial enterprise, or (c) [large aeronautics-related projects]. Costs of
issuance of the bonds also may be paid from bond proceeds.”
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NOTE: Personal property is a recent addition to the eligible expenditures,
which significantly broadened the ability to use SSRBs, but use of proceeds
for personal property triggers a two-year continuing payment obligation if the
personal property is subsequently removed from the project. This continuing
payment obligation is controversial and could be the subject of proposed
legislation.
e. As companies began to purchase their own SSRBs, state law was amended
to provide for a simpler structure, special source revenue credits (SSRCs)
that simply offset/reduce payments in lieu of taxes
S.C. Code 4-1-175 (second paragraph): “A county or municipality or special
purpose district that receives and retains revenues from a payment in lieu of
taxes pursuant to Section 13 of Article VIII of the Constitution of this State
may use a portion of this revenue for the purposes outlined in Section 4-29-68
without the requirement of issuing the special source revenue bonds or
meeting the requirements of Section 4-29-68(A)(4) by providing a credit
against or payment derived from the revenues received and retained under
Section 13 of Article VIII of the Constitution of this State.”
III.
Case law, AG’s opinions, DOR guidance
a. Horry County School District v. Horry County and the City of Myrtle
Beach, 346 S.C. 621, 552 S.E.2d 737 (2001) – seminal case on multicounty parks
i. Horry, Marion, Georgetown, and Dillon Counties entered into a
multi-county park covering 27 tracts of land and encompassing
almost 4,000 acres, all in Horry County and partly in the city of
Myrtle Beach
ii. Horry County School District covered all of Horry County
iii. Agreement provided that Horry County retained 99% of revenues
from payments in lieu of taxes derived from property within the
park, and 1% of the revenues would be divided among Marion,
Georgetown, and Dillon Counties
iv. For revenues going to Horry County, absent the multi-county park
agreement, the school district would have received 67% of
revenues from property in incorporated areas in the county and
53% of property tax revenues from property in unincorporated
areas
v. Of the 99% going to Horry County, the agreement allocated 50%
to the school district, 25% of revenues to county, and 24% of
revenues to retire debt incurred to finance qualifying public
infrastructure
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vi. School district challenged county’s authority to allocate revenues
from payments in lieu of taxes
vii. Court confirmed “there is clearly no requirement that revenue from
the fee in lieu of taxes from an MCBP be distributed in the same
proportion that it would be if the property were taxable,”
explaining as follows:
1. Constitution and state law permit counties to enter
agreements specifying how park revenues will be
distributed
2. State law specifically allocates that revenue to the county,
not any other taxing entity
3. State law does not require the county to distribute revenues
in proportions identical to shares of applicable millage rates
4. State law contemplates that a school district might not
receive proportionate funding and provides for calculation
of index of taxpaying ability regardless
5. If legislature intended to require proportionate distribution,
it would have said so explicitly, as it has in multiple places
with respect to non-park property
viii. Footnote 4 provides important guidance that has impacted practical
application of multi-county parks (emphasis in original): “Section
4-1-170(3) provides the agreement must “specify the manner in
which revenue must be distributed to each of the taxing entities
within each of the participating counties. We read this language as
requiring some allocation to each of the taxing entities within the
county.”
NOTE: Justice Pleicones dissented from this portion of the
opinion and would not have read the statute as requiring any
allocation to other taxing entities.)
ix. Opinion further notes defect in agreement that was not before the
court – agreement did not follow requirement of S.C. Code 4-1170(3) to “specify the manner in which revenue must be
distributed to each of the taxing entities within each of the
participating counties”; in particular, the agreement did not specify
what proportion of school millage went to debt service versus
operations
1. Many agreements today provide that revenue will be
distributed within each county as determined by that
county’s ordinance (which allows some flexibility for the
county to change the distribution within its borders without
having to obtain approval from the partner county of an
amendment to the agreement).
2. A common ordinance would provide that revenues will first
be used to pay debt service on special source revenue bonds
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(or fund credits), then cover expenses associated with the
park, then be allocated to the taxing entities in proportion to
their actual millage rates each year.
3. An alternative would be to allocate some portion of the
revenues to an economic development fund or for uses such
as infrastructure improvements to a county industrial
development park.
4. NOTE: While city consent is required for property located
in city limits, school district consent is not required, yet
counties can allocate funds away from the school district.
Policy and political considerations can arise quickly as a
result of this dynamic.
x. Court rejected challenge to constitutionality of multi-county park
statutes
b. Rev. Rul. 97-19 addressed the issue of whether an agreement between two
counties establishing a park could provide that only revenues from new
properties will be shared and that revenues from pre-existing properties
will not be shared (consider an existing facility with a proposed expansion,
which could be treated differently for property tax purposes). DOR
concluded that the agreement could not do so and that all revenue
generated within a park must be shared between the participating counties.
c. AG Opinion, 1993 SC AG LEXIS 78 (June 28, 1993) key conclusions:
i. County has authority to determine which taxing entities will
benefit from a multi-county park agreement
ii. County could retain all of the revenues for use by the county (this
conclusion was reversed in the Horry County case)
d. AG Opinion, 1993 SC AG LEXIS 145 (Dec. 10, 1993) addressed five
issues:
i. S.C. Code § 4-29-68(A), which includes “improved and
unimproved real property,” deemed to include buildings, structural
components of buildings, or office facilities
ii. S.C. Code § 4-29-68(A) deemed to include water sewage treatment
and disposal facilities, air pollution control facilities, and similar
improvements which are integrated into a building or otherwise
permanently affixed to the real property; items such as machinery,
equipment, furnishings, or the like, which are readily movable, but
which are unrelated to items forming a permanent part of the
infrastructure, would not be covered by the statute
NOTE: This opinion preceded statutory change to include
personal property.
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iii. County or political subdivision could own infrastructure or
improved real property and then lease the same to an industry at a
minimal or other lease rate below fair market value with a
purchase option at less than fair market value, depending on policy
decision to be made by the political subdivision (including indirect
benefits) to determine what a fair and reasonable return would be
for the disposition of the property in question
iv. Two counties may enter into a single agreement whereby
properties in the two counties would be considered a joint business
or industrial park (this conclusion modified the prior AG’s opinion
dated September 7, 1993, which contemplated multiple park
agreements for multiple properties).
v. A single county may issue special source revenue bonds rather
than each county being required to pay a portion of the special
source revenue bond. The AG’s opinion notes that one of the
counties could totally underwrite the expenses of the joint park
while sharing the revenues (this conclusion also modified the prior
AG’s opinion dated September 7, 1993). (NOTE: The result of
this AG’s opinion has been a norm of using a 99%/1% revenue
allocation and a 100%/0% expense allocation between counties,
although not without exceptions.)
e. AG Opinion, 1999 SC AG LEXIS 13 (Feb. 2, 1999):
i. Question was whether South Carolina law authorizes a county to
issue an SSRB for the construction of a school (this would have
saved the time and expense of a referendum, which would have
been required, because the school district had already reached its
constitutional debt limit)
ii. AG’s opinion discussed whether a school could constitute
infrastructure and thus be an eligible expenditure to justify the
issuance of an SSRB
iii. AG’s opinion stated that statute was not clear and that AG could
not provide definitive opinion
f. AG Opinion, 2005 SC AG LEXIS 82 (Aug. 8, 2005):
i. Revisited issue presented in 1999 SC AG LEXIS 13 and concluded
that schools are infrastructure and therefore are eligible
expenditures for which SSRBs may be issued
ii. “Jasper County has pointed to an urgent need to stimulate
economic growth and development by upgrading its schools. All
of these factors would weigh heavily in a court’s upholding Jasper
County’s exercise of its authority pursuant to § 4-29-68 as
reasonable in this instance.”
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g. AG Opinion, 2010 SC AG LEXIS 27 (Mar. 1, 2010):
i. Question was whether real property anticipated to be used for
residential purposes can be placed into a joint county industrial and
business park
ii. AG’s opinion noted that statutes do not state the type of property
that may be included in a park, but pointed out that the statute
allows for the creation of an “industrial” or “business” park
iii. AG’s opinion essentially did not reach a conclusion, advised
county to institute a declaratory judgment action
IV.
Special Source Revenue Credits
a. Statutory authority set forth above; also referred to as “SSRCs” or
“Infrastructure Credits”
b. Very flexible vehicle for reducing property taxes; can be structured in a
wide variety of ways
EXAMPLE 1:
Background: A manufacturing company is considering an investment of
$2,000,000 in a new facility. The investment will not qualify for a statutory
fee in lieu of tax (FILOT), which typically requires $2,500,000. The county
wishes to induce the company to locate within its borders, and low property
taxes in North Carolina threaten to kill the deal.
A typical FILOT would lock in the millage rate for 30 years and reduce the
assessment ratio from 10.5% to 6%. Here, the county could offer SSRCs to
reduce the property tax burden and make the location more attractive to the
company.
A few possible SSRC structures in this example (again, SSRCs are extremely
flexible and could be structured in a wide range of other ways):
i. 45% SSRC for 30 years (to approximate the savings that a FILOT
would have generated) (higher or lower percentage and term of
years could be applied instead)
ii. Fixed dollar amount SSRC to be applied for any number of years
(top-heavy credit on front-end can be particularly helpful for startup companies with cash flow issues)
iii. Some counties in these circumstances have offered an SSRC that is
calculated each year to produce the savings that a FILOT would
have provided. Consider the administrative burden in
implementing that structure (company and/or county must produce
a hypothetical calculation each year). In order to avoid that burden,
it may be more practical to estimate a percentage or dollar amount,
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but the downside is that the estimation can yield a higher or lower
credit than intended if the parameters change (i.e., higher or lower
investment, higher or lower millage rate than anticipated).
EXAMPLE 2:
Background: A distribution center is considering an investment of
$25,000,000 in a new facility. Because the distribution center’s real property
will be assessed at 6% already, a FILOT is not as attractive of an incentive.
The county wishes to provide a sweetener to the deal to make the location
more attractive to the company.
In this case, the county could provide an SSRC in lieu of or in addition to a
negotiated FILOT. The SSRC could be a percentage of fees generated from
the project, or it may be tied to a specific dollar amount. For instance, if the
project required $1,000,000 in road improvements that the company will have
to bear, and it would not have to bear those expenses at a location in another
state, it might be logical to structure an SSRC that is estimated to provide
$1,000,000 in savings. That $1,000,000 could be structured however the
company and county choose ($200,000 per year for five years; $100,000 per
year for ten years; etc.).
c. General SSRC Considerations
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
V.
Percentage vs. fixed dollar amount vs. formula
Term of the SSRC
Commencement of the SSRC period
Investment and/or job creation requirements
Consequences of failure to achieve requirements (sometimes,
counties require repayment of SSRCs; repayment may be prorated
based on partial achievement of requirements)
Administrative ease/difficulty of applying credits (DOR is not
involved in applying SSRCs)
Partner county to use (ideally, partner county would reciprocate
with its deals)
City consent required for multi-county park if property is located
in a park
School district consent is not required, but is there a political issue?
(may not be a big issue if the county is not altering the allocation
of revenues)
Job Tax Credits (S.C. Code § 12-6-3360)
a. Income tax credit based on job creation (key caveat with job tax credits is
that many businesses, particularly start-ups, do not have sufficient S.C.
income tax liability to make full use of these credits)
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b. Available for small or large businesses that create ten or more full-time
jobs
c. Also available for small businesses (99 or fewer employees) creating two
or more full-time jobs if they would not qualify for the more general credit
(but wage requirements apply)
d. Credit ranges from $750 to $8,000 per job per year for five years (S.C.
Code § 12-6-3360(B))
e. Counties are ranked from Tier I to Tier IV based on per capital income
and unemployment; credits are higher for more economically distressed
counties (see DOR Information Letter 11-4)
f. Additional credit of $1,000 per job per year for property located in a
multi-county park (provided that maximum total credit is $5,000 per job
per year except for projects in Tier IV counties)
g. Additional credit of $1,000 per job per year for property located on a
Brownfields site (provided that maximum total credit is $5,000 per job per
year except for projects in Tier IV counties)
h. Eligible businesses
1. Manufacturing, tourism, processing, warehousing,
distribution, R&D, corporate office, qualifying service,
agribusiness, extraordinary retail establishment, qualifying
technology (S.C. Code § 12-6-3360(A))
2. Types of businesses defined in detail in S.C. Code § 12-63360(M)
3. Qualifying service-related facility must have one of the
following: (a) 250 jobs at a single location, (b) 125 jobs
paying average of more than 1.5 times lower of state or
county per capita income, (c) 30 jobs paying average of
more than 2.5 times lower of state or county per capita
income (S.C. Code § 12-6-3360(M)(13))
4. Retail or service businesses only eligible in Tier IV
counties (S.C. Code § 12-6-3360(A))
i. Carryforward period – 15 years (S.C. Code § 12-6-3360(H))
j. Job Creation – generally, must have average monthly increase of ten (two
for small business) new full time jobs (higher for certain tourism facilities,
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i.e., new hotels, and qualifying service related facilities) (S.C. Code § 126-3360(C)(2)(a))
k. Form SC616 – company may file this form to prevent reduction in credits
if the county in which the project is located is moved to a higher tier in
future years
l. For additional references, see Revenue Ruling 99-5 (computation and
examples), Revenue Ruling 07-2 (small business provisions)
EXAMPLE 1:
Background: A new corporate office facility opens in Newberry County. The
corporate office facility will create 20 new jobs.
Because Newberry County is a Tier II county, the jobs would be eligible for
JTCs of $2,750 per year. If the property is in a multi-county park, the amount
is increased to $3,750 per year.
Calculation:
20 jobs x $3,750 per job per year = $75,000 per year
$75,000 per year x 5 years = $375,000
If not included in the multi-county park, reduced to $55,000 per year
$55,000 per year x 5 years = $275,000
VI.
Additional Use for Multi-County Parks - Create an actual county park (as
opposed to a statutory multi-county park).
Example – Include multiple parcels in park, allocate 10% of revenues to fund to be
used for improvements to the park designed to attract new industries (roadwork,
landscaping, utilities, signage); provide funding for schools (see AG’s opinions above)
QUESTIONS/COMMENTS
Gary W. Morris
Haynsworth Sinkler Boyd, P.A.
1201 Main Street
Suite 2200
Columbia, SC 29201
(803) 540-7961
gmorris@hsblawfirm.com
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Let’s Make a Deal!
The Use of Incentives to Attract Industry
Presented January 20, 2012 at the
South Carolina Bar Convention
Government Law Section Seminar
By
April C. Lucas, Esquire
Nexsen Pruet, LLC
803-540-2035
alucas@nexsenpruet.com
OVERVIEW OF ECONOMIC DEVELOPMENT
PROCESS
Business Fundamentals
Distance from market and suppliers
Qualified labor pool
Infrastructure and utilities
Overall cost of doing business
Timing requirements
General business climate
OVERVIEW OF ECONOMIC DEVELOPMENT PROCESS
Quality of Life
Management preferences for urban or rural community
General education system
Responsiveness of state and local government to needs of
business community
Cultural amenities
Local leadership
OVERVIEW OF ECONOMIC DEVELOPMENT
PROCESS
Economic Development Incentive
Goals
Reduction of up-front costs to ease cash flow problems
associated with start up
Ensure reasonable on-going cost of doing business
Equalization of costs compared to other sites
OVERVIEW OF ECONOMIC DEVELOPMENT
PROCESS
Economic Development Tools
Infrastructure grants
Below market financing
Employee training and retraining programs
Minimization of tax burden
 Income taxes
 Sales and use taxes
 Property taxes
RELATIVE CONTRUBTION OF STATE AND
LOCAL GOVERNMENT AND PRIVATE
PARTICIPANTS
Local contribution becoming increasingly
important
Federal cutbacks
State laws enacted over the last twenty years
Increased level of marketing at regional and local level
Increased professionalism at local level
RELATIVE CONTRUBTION OF STATE AND
LOCAL GOVERNMENT AND PRIVATE
PARTICIPANTS
Negotiation with other governmental and private
participants simultaneously with negotiations with
prospect
Need to ensure that local government does not shoulder
burden properly borne by private developer
Need to determine county goals and educate the decision
makers and other affected taxing entities
Government officials should familiarize themselves with
resources of other participants in recruiting process
RELATIVE CONTRUBTION OF STATE AND
LOCAL GOVERNMENT AND PRIVATE
PARTICIPANTS
Negotiation with other governmental and private
participants simultaneously with negotiations with
prospect
Intergovernmental agreements among governmental
participants (IGAs)
Development agreements between governmental entity and
company for public funding of public infrastructure
constructed by, and to the order of, private entity
MOUs and incentive agreements for overall incentive package
DEVELOPMENT OF LOCAL STRATEGY
FOR ECONOMIC DEVELOPMENT
Strategic Mindset
Targeted marketing
Coordination with State and other local government entities
Clear guidelines for economic development professionals
Best practices for economic development offices
Educate elected officials and business leaders
Regional alliances for marketing
Domestic and foreign marketing missions
DEVELOPMENT OF LOCAL STRATEGY
FOR ECONOMIC DEVELOPMENT
Product Development
Industrial parks
Spec buildings
Certified sites
GIS mapping
Marketing packages
Website
DEVELOPMENT OF LOCAL STRATEGY
FOR ECONOMIC DEVELOPMENT
Cost-Benefit Analysis
Types of projects to pursue
Incentive package to offer specific prospects
Each community must tailor its plan to meet goals specific to that
community
Planning assistance available from the South Carolina Board of
Economic Advisors and DOC
DEVELOPMENT OF LOCAL STRATEGY
FOR ECONOMIC DEVELOPMENT
Cost-Benefit Analysis
Schedule of benefits being developed by some counties
Typical benchmarks revolve around:
  Investment
  Job creation
  Wage levels
  Type of jobs
Query whether guidelines are used to set limits for negotiation or to address equal protection
concerns?
Query whether equal protection problems amplified to the extent that county deviates from
schedule for some prospects, but not others?
DEVELOPMENT OF LOCAL STRATEGY
FOR ECONOMIC DEVELOPMENT
Cost-Benefit Analysis
Many such schedules fail to take into account difficult to quantify
factors such as:
 Whether project requires substantial upfront outlay for infrastructure
 Whether there will be significant spin-off projects
 Whether the project is competitive
“Planning is essential; plans are useless” (General Dwight D.
Eisenhower)
Confidentiality
SC Freedom of Information Act
S.C. Code Ann. §30-4-30(a)
“Any person has a right to inspect or copy any public record
of a public body, except as otherwise provided by Section
30-4-40, in accordance with reasonable rules concerning
time and place of access.”
Confidentiality
SC Freedom of Information Act
Economic Development Exemptions
§40(a)(1):
§40(a)(5):
§40(a)(9):
Trade Secrets
Proposed Contractual Arrangements
On-going Economic Development
Negotiations
Confidentiality
SC Freedom of Information Act
On-Going Economic Development Negotiations
Code names frequently used for preliminary approval
Relocation projects the most sensitive due to labor concerns
Tom Tom circuit
Inventory of Principal Economic
Development Tools
Local Level
Property tax abatements and credits
Fee-in-Lieu-of-Taxes
Special Source Revenue Bonds
Special Source Credits
Multi-County Industrial or Business Parks
Inventory of Principal Economic
Development Tools
Local Level
Infrastructure Financing:
 Tax Increment Financing
 Assessment Bonds
 Revenue Bonds, e.g. water & sewer & parking facilities
 General Obligation Bonds
 Utility tax credits
Inventory of Principal Economic
Development Tools
Local Level
Other sources available in particular communities
Examples:
 ICAR
 InnoVista
 Charleston Digital Corridor
Inventory of Principal Economic
Development Tools
Role of Municipalities
Traffic, taxes and parking
Revitalization areas
Holistic approach
 Strategic planning
 Streetscaping
 Building Codes
 Infrastructure
 Incentives
Inventory of Principal Economic
Development Tools
State Level
Job Development Credits (grants from SC Employee Withholding)
Income Tax Credits
Sales and Other Tax Exemptions-Bodman vs. State of SC et al.
Industrial Development Bonds
State Rural Infrastructure Fund
DOC Closing Fund
Community Development Block Grant Program (non-entitlement
areas only)
Inventory of Principal Economic
Development Tools
State Level
Section 108 Program (non-entitlement areas only)
Highway Set-Aside Program for Economic Development
readySC and Workforce Investment Act for Job Training
South Carolina Research Authority
Venture Capital Programs (Palmetto Seed Capital, InvestSC)
Other sources for particular projects
Inventory of Principal Economic
Development Tools
Other
New Market Tax Credit financing for projects in poverty
stricken areas
Rural America Bonds for businesses in rural areas
Various federal grant and loan programs; e.g. Empowerment
Zones, B&I, SBA, etc.
University programs
Selected Tax Credits/Exemptions
Income Taxes
Jobs Tax Credits
Economic Impact Zone Credits
Corporate Headquarters Credits
Infrastructure Credits
Research and Development Credits
Port Volume Increase Credits
Selected Tax Credits/Exemptions
Income Taxes
Child Care Program Credits
Minority Business Credits
Quality Improvement Program Credits
Textile Revitalization Credits
Retail Facility Revitalization Credits
Historic Structure Rehabilitation Credits
Hydrogen Fund Tax Credit (SCRA Fund)
Selected Tax Credits/Exemptions
Sales & Use Taxes
Computer services and software in the form of data
processing
Sales to federal government
Long-distance telephone calls
Research and development machinery
Computer equipment, electricity and certain fuel for
technology intensive facility
Selected Tax Credits/Exemptions
Sales & Use Taxes
Clean room environment
Packaging used in sale and delivery of personal property
Coal, coke and other fuel and electricity used in the
manufacturing process
Machines used in manufacturing, processing or recycling
tangible personal property for sale, including machines
used to prevent or abate air, water or noise pollution
Selected Tax Credits/Exemptions
Property Taxes
Partial five-year moratorium for qualifying manufacturing,
distribution, research and development, corporate
headquarter and corporate office facilities
 Not available if negotiated fee in lieu of tax arrangement used
Exemption for pollution control equipment
Exemption for inventory and intangibles
Environmental cleanup exemption
Selected Tax Credits/Exemptions
Property Taxes
Exemption for Air Carrier Hubs
 Personal property, including aircraft
Exemption for Aircraft used for transport of specialized cargo
Selected Tax Credits/Exemptions
Property Taxes
Textile revitalization credits
 Must elect income tax credit or property tax credit
Retail facilities credits
 Must elect income tax credit or property tax credit
Special assessment for rehabilitated historic property
 Must be granted by ordinance of city or county
Practice Tips Re Local Incentives
Fee In Lieu of Taxes (“FILOT”)
Allows counties and companies to negotiate a reduced
assessment ratio and fixed millage rate for up to 30-40
years with substantial savings compared to ad valorem
taxes and abatements
Practice Tips Re Local Incentives
FILOT: Choice of Law
Original FILOT Act (Section 4-29-67 of the S.C. Code)
 $45 Million Minimum
 May use alternate payment schedule, e.g. flat fee payments
 Lease purchase structure-County holds title to assets
 Must issue industrial revenue bonds
Practice Tips Re Local Incentives
FILOT: Choice of Law
Streamlined FILOT Act (§ 4-12-10 et seq. of the S.C. Code)
 Lease purchase structure-County holds title to assets
 Bonds need not be issued
 No alternate payment schedule allowed
 $2.5 Million Minimum ($1 Million in certain distressed counties)
Practice Tips Re Local Incentives
FILOT: Choice of Law
Simplified FILOT Act (§12-44-10 et seq. of the S.C. Code)
 Simple contract
 Company retains title to assets
 $2.5 Million Minimum ($1 Million in certain distressed counties)
 Alternate payment schedule for projects exceeding $45 million
 Less complicated and less expensive, but untested in court
Practice Tips Re Local Incentives
FILOT: Basic Procedures
Inducement action
 Preliminary approval by resolution of county council
 Approval by ordinance following public hearing considered
necessary to bind the county legally
 However, the basic terms should be specified in writing at
inducement stage since companies make decisions often
worth hundreds of millions in reliance
Practice Tips Re Local Incentives
FILOT: Basic Terms
Inducement Agreement or Memorandum of Understanding (“MOU”)
and final incentive agreement should specify:
 Minimum investment and job creation
 Expectations as to wages, completion deadline, nature of jobs,
etc.
 Investment and/or job maintenance requirements
 Remedies, e.g. termination of benefits and/or clawbacks
Practice Tips Re Local Incentives
FILOT: Basic Terms
Inducement Agreement or MOU and final incentive agreement
should specify:
 Indemnification against liability arising from administration of
incentive program, particularly for environmental matters in lease
agreements
 Respective responsibility for the county’s legal and other expenses
 Security rights of governmental entity, particularly where funds are
committed up front
Practice Tips Re Local Incentives
Multi-County Parks
Allows companies to claim an additional $1000 credit per
employee against up to 50% of taxable income
Facilitates Special Source Bonds and Credits
County must relinquish a portion (usually 1%) of FILOT
revenues as consideration for partner county’s agreement
to join park arrangement
Practice Tips Re Local Incentives
Multi-County Parks
Property should be added to the park by ordinance since the
decision results in the county foregoing revenue
Municipal consent required if property within city limits
Practice Tips Re Local Incentives
Special Source Revenue Bonds (“SSRB’s”)
Counties are authorized under §4-29-68 and §4-1-175 of the S.C.
Code (and under each of the FILOT statutes) to issue bonds
payable solely from FILOT revenues collected under negotiated
FILOT arrangements or under Multi-County Park arrangements
Bond proceeds may be used to finance infrastructure, improved and
unimproved real estate and personal property (including
machinery & equipment) used in the operation of manufacturing
and commercial enterprises and aircraft
Practice Tips Re Local Incentives
Special Source Revenue Bonds (“SSRB’s”)
Allocation of bond proceeds to personal property
 If personal property removed during the life of the fee arrangement,
amount of fee in lieu of tax during the year of removal must be paid for
two years following removal
 If bond proceeds allocable to real and personal property, proceeds
presumed to have been applied first to personal property
 If property replaced with other qualifying property, original property
deemed not to have been removed
Practice Tips Re Local Incentives
SSRB’s
May be used for single project or for group of projects as
part of overall strategic planning
 For single projects, the primary benefit to the company is the
reduction of up-front costs associated with the project
 For a group of projects, county can obtain financing or build
fund to provide needed infrastructure, spec buildings or land for
a new industrial park
Practice Tips Re Local Incentives
SSRB’s
Bonds may be put out for bid or sold to company
 If put out to bid, county must take care to negotiate with company
for adequate assurances that FILOT revenues will be sufficient to
pay debt service on bonds
 County must pay attention to mix of real and personal property
since personal property depreciates
 County must take into account termination rights of company and
possibility of delay in project
Practice Tips Re Local Incentives
SSRB’s: Credit Issues
Nature of collateral and documentation necessary to market the
bonds
If company’s investment does not materialize in timely fashion,
county has insufficient funds to pay debt service and interest
begins to accumulate beyond that which is anticipated; county
should shift this burden to company
If company purchases bond, can negotiate forgiveness of any debt
service not timely made or cut off interest on specified date
Practice Tips Re Local Incentives
SSRB’s: Credit Issues
Incentive Agreement must clearly distinguish between
company payments pledged to secure any industrial
development bonds issued in connection with the project
and the FILOT revenues which must secure the SSRB’s
Amortization schedule can be structured with fixed payment
terms similar to home mortgage or by applying specified
percentage of FILOT revenues to debt service
Practice Tips Re Local Incentives
SSRB’s: Credit Issues
County may wish to provide for minimum return to county
from FILOT revenues, thereby taking position senior to
holder of SSRB
County should specify cap on interest rate at the inducement
stage; if company buys the bond, market rate should be
determined
Practice Tips Re Local Incentives
SSRB’s: Credit Issues
Unless property is located in a Multi-County Park, each local
government entity may only pledge revenues attributable
to its millage
If property in a Multi-County Park, county can pledge all
millage, including that attributable to other governmental
entities
Approval by municipality required if property within city limits
Practice Tips Re Local Incentives
Special Source Credits (“SSRC’s”)
In lieu of issuing SSRB’s, a county may use a portion of its FILOT revenues for
the same purposes for which the proceeds of SSRB’s could be used without
having to issue the bonds
See §4-12-30(K)(3),§4-29-67(K)(3) and §12-44-70 of the S.C. Code
Unless company requires substantial reduction of up-front costs, the economic
development improvement credit represents a much simpler means of
providing the company with significant financial support
Practice Tips Re Local Incentives
Constitutional Constraints
Byrd v. County of Florence, 281 S.C. 402, 315 S.E.2d 804
(1984).
South Carolina Supreme Court held that ordinance
authorizing general obligation bonds for acquisition and
development of an industrial park was unconstitutional
General obligation debt may be incurred only for valid public
and corporate purpose
Practice Tips Re Local Incentives
Constitutional Constraints: Byrd
Court set forth a four part test:
1) Court should determine ultimate goal or benefit to the public
intended by the project
2) Court should determine whether public or private parties will be
primary beneficiaries
3) Court should consider speculative nature of project
4) Court should evaluate the probability that the public interest will
ultimately be served and to what degree
Practice Tips Re Local Incentives
Constitutional Constraints: Nichols
Nichols v. South Carolina Research Authority, 290 S.C. 415, 351 S.E.2d 155
(1986)
Supreme Court upheld the statute creating the South Carolina Research
Authority
Court overruled Byrd to the extent that it held that industrial development is not a
public purpose for which public revenues may be appropriated or extended
Retained four-part test from Byrd and posited the concept that public purpose is
fluid and will change over time with the changing needs of society
Practice Tips Re Local Incentives
Constitutional Constraints
See also:
Hucks v. Riley, 292 S.C. 492, 357 S.E.2d 458 (1987), upholding the constitutionality of industrial
revenue bonds issued to finance the acquisition of public lodging and restaurant facilities
providing service in connection with tourism, sports and recreational facilities.
Quirk v. Campbell, 302 S.C. 148, 394 S.E.2d 320 (1990), upholding the constitutionality of
negotiated fee in lieu of tax program for property leased by counties to businesses based
upon exemption for publicly owned property despite fact that property not used exclusively for
public purposes.
Horry County School District v. Horry County and the City of Myrtle Beach, 346 S.C. 621,
552 S.E.2d 737 (2001), upholding the constitutionality of multi-county park/special source
revenue bond legislation.
Presented by: Gary T. Pope, Esq.
Pope Zeigler, LLC
Columbia, S.C.
HERDING CATS THE TRUTH ABOUT CONSOLIDATING SPECIAL PURPOSE DISTRICTS
Consolidating special purpose districts is not a project to be undertaken lightly.
Consolidation cannot be forced. Many will not recognize that it needs to be done
at all, and the machinations of local politics can be taken to a new level to either
encourage the process or stop it in its tracks. The members of the delegation will
likely be involved, as well as all county elected officials. Members of the affected
boards will be jockeying to see who stays in office. In essence, it is a process of
last resort that requires the cooperation of all involved, if it is to be successful.
1.
Under discussion are special purpose districts (“SPDs”), units of local
government created by special legislation before the Home Rule
Constitutional Amendments became effective on March 7, 1973.
2.
We are not discussing districts created pursuant to local referendum by
authority of general law within the unincorporated area of a county for
supplying electric lighting, water or sewer services, fire protection, or
protection of the public health, under S.C. Code Ann. 6-11-10, et seq.
3.
Article 3 of Chapter 11 of Title 6 contains most of the relevant statutory
provisions you need to be concerned about, and a copy is attached. I have
also included S.C. Code Ann. §§ 6-11-271, -273 and -275.
4.
Specifically the relevant terms are defined in the Code as follows:
SECTION 6-11-410. Definitions.
For the purposes of this article, the following terms shall have the
following meanings:
(a) “Special purpose district” shall mean any district created by act
of the General Assembly prior to March 7, 1973, and to which has
been committed prior to March 7, 1973, any local governmental
function.
(b) “County board” shall mean the governing bodies of the several
counties of the State as now or hereafter constituted.
(c) “Commission” shall mean the governing body of any special
purpose district as now or hereafter constituted.
5.
Typically, the function of an SPD was to provide limited local government
services in rural areas of a type that counties were not then authorized to
provide, such as fire protection, water or sewer service, or a combination of
any of those functions.
6.
Under the Home Rule Act (codified at S.C. Code Ann. § 4-9-80), county
councils have no power to change anything about the powers and functions
of an SPD, except that they can enlarge or decrease the boundaries of an
SPD within that county, or preside over the consolidation of two or more
SPDs, with one exception - board membership. See S.C. Code Ann. §§ 4-980, and 6-11-410–650.
7.
S.C. Code Ann. § 6-11-610 does allow a county council to modify the
membership of the Board of Commissioners, so that it is composed of not
less than 3 nor more than 9 members, but can only do so in connection with
the enlargement or diminishment of a single district or the consolidation of
two or more districts. In consolidation, membership on the resulting board
may be a point of contention.
8.
SPDs do not have broad Home Rule powers and are limited to the specific
powers granted to them in their enabling legislation, as modified by general
law. See Evins v. Richland County Historic Preservation Com’n, 341 S.C.
15, 532 S.E.2d 876 (2000).
2
9.
SPDs are creatures of state statute, and should not be confused with special
taxing districts which can be created by county councils after a favorable
referendum to levy taxes within specified unincorporated areas within a
county to provide a particular service, pursuant to the Home Rule Act, but
which remain under the control of county council. See S.C. Code Ann. § 49-30(5).
10. Some SPDs have elected boards with direct taxing power, while some
elected boards can only recommend a millage to county council.
11. Other SPDs have appointed boards, and even if permitted to levy taxes by
direct taxation in their enabling legislation or by millage limits established
by referendum, appointed boards can only recommend a tax levy to county
council, which must approve it. This limitation on the ability of an
appointed board to directly impose taxes is based on decisions of the S.C.
Supreme Court in Crow v. McAlpine, 277 S.C. 240, 285 S.E.2d 355 (1981)
and Weaver v. Recreation District, 328 S.C. 83,492 S.E.2d 79 (1997). Also
see S.C. Code Ann. §§ 6-11-271, -273 and -275.
12. In many cases, the maximum amount of the tax levy for operating purposes
has been set by referendum. See S.C. Code Ann. § 6-11-273.
13. However, all SPDs are subject to the millage caps under 2006 Act No. 388,
codified at S.C. Code Ann. § 6-1-320, and the maximum levy can be
reduced by the mandatory millage rollback imposed by § 6-1-320 when the
quadrennial reassessment occurs (S.C. Code Ann. § 12-43-217).
14. All SPDs are confined to specified geographical areas, typically within the
unincorporated areas of one County, but not always.
15. The limitations on Home Rule powers found in Article VIII, Sections 7 and
8, of the South Carolina Constitution have made unconstitutional any local
legislation (i.e. legislation that specifically affects only one county or one
municipality). The Governor routinely vetoes such legislation and the
3
General Assembly routinely overrides her veto. The laws stand until
challenged in court, but the validity of bond issues and other official actions
can be jeopardized, depending on the significance of the statutory change
and the litigiousness of the electorate.
16. SPDs are primarily found in rural areas, or in areas that were formerly rural.
Many residents of such SPDs view them as the last bastion of real “home
rule” on the local level, and any efforts to change or consolidate an SPD can
create firestorms of public opinion and fierce opposition. This is particularly
true of SPDs that provide fire protection.
REASONS FOR CONSOLIDATION
1.
2.
3.
4.
5.
6.
7.
8.
Closure of major industrial taxpayers or customers.
Deteriorating tax base or customer base.
Increased costs of operation.
Inability to afford upgrades to existing facilities or construction of
new regulated facilities, such as fire stations, water or sewer plants,
or the installation of water lines, hydrants, or sewer lines, and the like.
Inability to pay competitive wages to paid workers
For fire districts, inability to attract volunteers.
Economies of scale.
Too much debt.
HOW A CONSOLIDATION EFFORT COMES ABOUT, AND HOW IT
AFFECTS THE PROCESS.
1.
SPD Board realizes that it is failing and cannot succeed with existing tax
base or rate base.
A. SPD Board seeks help from County Council;
B. Generates support within the community;
4
C. Reaches out to one or more adjacent SPDs for cooperation in
the consolidation process;
D. SPD boards formulate and agree on a plan of consolidation
and adopt the plan by formal action; and
E. The plan of consolidation is presented to county council by
joint resolution or other joint action of the SPDs that wish to
consolidate, along with a request for a public hearing to be
held.
2.
County council on its own initiative can decide to consider taking action to
enlarge or diminish the boundaries of an SPD, or to consolidate an SPD with
one or more SPDs located in the county, typically with adjacent SPDs, if the
consolidation is to be practical. In this event, the County would have to
prepare a proposed plan of consolidation.
3.
If the community believes that the SPD is not performing its functions
properly, citizens can initiate a petition process to request county council to
take action to begin consolidation of the SPDs.
A. In such cases, the process becomes more of a political process than a
legal process.
B. Community leaders then identify a consolidation partner and negotiate
the deal.
C. Those adversely affected by consolidation will actively oppose efforts
at consolidation.
D. However, public money cannot be spent to advocate for or against
consolidation.
E. Someone will complain that consolidation will cause taxes or service
rates to rise.
F. County council could require a referendum on the consolidation issue
to avoid taking a position that would prove to be too unpopular.
5
PUBLIC HEARING REQUIREMENTS:
1.
No matter how the process is started, county council cannot
take
affirmative action to change boundaries or consolidate until it has:
A. Passed a resolution setting a date for a public hearing on the question
and approving the form of the notice of public hearing.
1.
The form of the notice of the hearing must contain:
i.
the time, date, and place of the hearing;
ii.
brief description of the nature of the change;
iii. brief description of the proposed boundaries;
iv.
functions to be performed by the SPD, as
consolidated;
v.
summary of the reasons for the change;
vi.
costs of any proposed improvements;
vii. statement about any bonds to be issued
immediately following the change of boundaries.
B. If the consolidated SPD is precluded by law from performing a
government service to an area within its boundaries, the affected area
must be described in the notice along with a description of the service
that will not be provided and the notice shall identify the public entity
that is authorized to provide that service.
C. The notice of public hearing must be published once a week for three
weeks before the hearing is held (S.C. Code Ann. § 6-11-440A).
OFFICIAL ACTION TO CONSOLIDATE:
6
After the public hearing the county council shall, by resolution1, make a finding
as to whether and to what extent the boundaries of the special purpose district
shall be changed or whether the special purpose districts shall be consolidated.
See S.C. Code Ann. § 6-11-460.
1.
If the county council takes official action to change the boundaries or
consolidate districts, the resolution (or ordinance) must redefine the
boundaries in such fashion as to make possible the appropriate entries in the
records of the auditor and treasurer to establish the boundaries of
the
district(s) as reconstituted. The county assessor is not
mentioned in the
statute, but the assessor is the county official who keeps
the
detailed
property assessment records, and should be specifically included in the
notification, to avoid problems in implementation of the plan of
consolidation. See S.C. Code Ann. § 6-11-460.
2.
After official action is taken to consolidate districts and/or redraw
SPD
boundaries, the county council publishes notice of its action once a week
for two successive weeks in a newspaper of general circulation within the
county.
3.
Per S.C. Code Ann. § 6-11-470(A), the notice must contain the following:
(a) the results of its action;
(b) whether, pursuant to the remaining provisions of this article, bonds
of the special purpose district are then to be immediately issued, and,
if so, the amount of bonds and the method provided for their payment;
and
1
This statute was enacted after the adoption of the Home Rule amendments to the South
Carolina Constitution but before the adoption of the Home Rule Act. A section of the Home
Rule Act, S.C. Code Ann. § 4-9-120, requires that legislative action be taken by ordinance of
county council, not by resolution. Prudence may require a recommendation that County Council
take official action by ordinance when consolidating SPDs, until there is a definitive court ruling
on this issue.
7
(c) whether, pursuant to the provisions of Section 6-11-10, there will
be a new commission or changes made in the personnel of the old
commission for the special purpose district as enlarged, diminished, or
consolidated.
4.
If a consolidated or enlarged special purpose district is, pursuant to Chapter
11 of Title 6, precluded from providing a governmental service to an area
within its boundaries, the notice prescribed by subsection § 6-11-470(A) also
shall include a description of the area in which the governmental service will
not be provided by the special purpose district and shall identify the
political subdivision which is authorized to provide the service.
5.
Any person affected by the action of the county council changing district
boundaries or consolidating SPDs may file an action de novo in the Court of
Common Pleas for such county within twenty days following the last
publication of the notice prescribed by § 6-11-470, but not afterwards,
challenging the action of the county council.
OTHER CONSIDERATIONS
1.
Typically, the weaker SPD, which needs to consolidate to survive, has
incurred either budget deficits, lease-purchase obligations (not technically
debt), or general obligation bonds that are burdensome.
2.
Typically, the stronger SPD does not want to take on the obligations of the
weaker SPD, and, in the same vein, the constituents of the weaker SPD do
not want to be responsible for paying taxes to pay off the obligations and
bonded indebtedness of the stronger SPD. A plan needs to be devised to sort
this out.
3.
It is very important to note that bonded indebtedness incurred by an SPD
before consolidation can continue to be repaid from the taxes levied on the
pre-consolidation district. This is why it is important to keep the district
boundaries straight in the county records.
8
4.
Lease purchase obligations, which may have been incurred for anything
from fire stations or sewer pump stations to acquiring specialty vehicles, are
considered part of the operating budget of each SPD, because of the use of
the non-appropriation clause, as approved in the Caddell2 case and
reaffirmed in the Colleton County Taxpayers3 case. This means that lease
purchase payments are paid out of the operating millage, and are subject to
millage caps.4 Payments for bonded indebtedness, secured by a pledge of
property taxes, are paid by a separate levy that is exempt from the millage
caps, but the maximum principal amount of such indebtedness is subject to
the Constitutional limit of 8% of assessed value of the issuing governmental
entity, unless a greater amount is approved by referendum.5
5.
Existing contractual obligations must be scrutinized, and decisions made
about continuing or winding up those relationships. Potential litigation
should be identified, risks quantified, and outstanding problems dealt with.
The attorney should be aware of time and other limits imposed on various
contracts entered into by governmental entities. Most contracts are only
valid until the end of the current budget year or the end of the terms of the
serving members, depending on the nature thereof. For a primer in this area,
please refer to City of Beaufort v. Beaufort-Jasper County Water & Sewer
Auth., 325 S.C. 174, 480 S.E.2d 728 (1997). Also, see Piedmont Pub. Serv.
Dist. v. Cowart, 319 S.C. 124, 459 S.E.2d 876 (Ct. App. 1995) aff'd, 324
S.C. 239, 478 S.E.2d 836 (1996).
6. In rearranging the financial obligations of consolidating SPDs, one should
consider refunding any outstanding bonds, which bear a higher interest rate
than the current market rate, and simultaneously issuing additional bonds to
pay off any outstanding lease purchase or other obligations, to clear out non2
Caddell v. Lexington County Sch. Dist. No. 1, 296 S.C. 397, 373 S.E.2d 598 (1988)
3
Colleton County Taxpayers Ass'n v. Sch. Dist. of Colleton County, 371 S.C. 224, 638 S.E.2d
685 (2006)
4
Mandatory millage caps were a prime feature of 2006 Act # 388, and are codified at S.C. Code
Ann. § 6-1-320.
5
Art. X, § 14 (6) & (7), S.C. Constitution
9
bonded debt and get the bonded debt to a manageable level. As part of this
process, it may be possible to use extra monies in existing debt service funds
and debt service reserve funds to reduce the amount of bonds that need to be
issued.
7.
To issue debt, the issuing SPD will have to have current audits available.
The cost of these audits can be considerable, but without them it is difficult,
if not impossible, to sell the necessary bonds.
8. As to the base operating millage of the consolidated district, the law as stated
in S.C. Code Ann. § 6-1-320 and related provisions is not clear as to how a
new base operating millage will be determined. Because the facts will vary so
much from one situation to the next, it is difficult to speculate on this, except
to say that the courts have not addressed this issue.
CONCLUSION
1.
In most cases, consolidations cannot successfully be forced.
2.
The weaker SPD is more likely to seek a consolidation partner.
3.
Stronger SPDs may seek a weaker partner to make a strategic expansion, or
to position the SPD for the future.
4.
Political considerations, both at the SPD level and at the county council
level, cannot be underestimated. The officials making the decisions should
be fully on board with the process.
5.
Resolving debt and millage issues of the consolidating SPDs must be met
head-on, preferably at the beginning of the process
6.
A legal challenge to a consolidation can be expensive to defend, and may
turn on technicalities, such as meeting publication requirements and the like.
Prior to commencing the process, the county or concerned SPDs should
check their insurance coverage for the availability and amount of legal
10
defense insurance, that could help pay the costs of defending a challenge to
the consolidation. Tort liability insurance will likely not apply.
11
CODE OF LAWS OF SOUTH CAROLINA, 1976, TITLE 6, CHAPTER 11.
EXCERPTS FROM ARTICLE 2
GENERAL PROVISIONS
SECTION 6-11-271. Millage levy for special purpose district.
(A) For purposes of this section, “special purpose district” means any special
purpose district or public service authority, however named, created prior to
March 7, 1973, by or pursuant to an act of the General Assembly of this State.
(B)(1) This subsection applies only to those special purpose districts the
governing bodies of which are not elected but are presently authorized by law to
levy for operations and maintenance in each year millage up to or not exceeding a
given amount and did impose this levy in fiscal year 1997-98.
(2) There must be levied annually in each special purpose district described in
item (1) of this subsection, beginning with the levy for fiscal year 1999, ad
valorem property tax millage in the amount equal to the millage levy imposed in
fiscal year 1998.
(C)(1) This subsection applies only to those special purpose districts, the
governing bodies of which are not elected but are presently authorized by law to
levy for operations and maintenance in each year millage without limit as to
amount.
(2) There must be levied annually in each special purpose district described in
item (1) of this subsection, beginning with the levy for fiscal year 1999, ad
valorem property tax millage in the amount equal to the millage levy imposed in
that special purpose district for operations and maintenance for fiscal year 1998.
(D) Notwithstanding any other provision of law, any special purpose district
within which taxes are authorized to be levied for maintenance and operation in
accordance with the provisions of subsections (B) or (C) of this section, or
otherwise, may request the commissioners of election of the county in which the
special purpose district is located to conduct a referendum to propose a
modification in the tax millage of the district. Upon receipt of such request, the
commissioners of election shall schedule and conduct the requested referendum
on a date specified by the governing body of the district. If approved by
referendum, such modification in tax millage shall remain effective until changed
in a manner provided by law.
(E)(1) All special purpose districts located wholly within a single county and
within which taxes are authorized to be levied for maintenance and operation in
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accordance with the provisions of subsections (B) or (C) of this section, or
otherwise, are authorized to modify their respective millage limitations, provided
the same is first approved by the governing body of the district and by the
governing body of the county in which the district is located by resolutions duly
adopted. Any increase in millage effectuated pursuant to this subsection is
effective for only one year.
(2) Any millage increase levied pursuant to the provisions of item (1) of this
subsection must be levied and collected by the appropriate county auditor and
county treasurer.
SECTION 6-11-273. Tax levy referendums.
Notwithstanding any other provision of law, any special purpose district created
by an act of the General Assembly which is authorized to levy taxes for the
operation of the district may request the commissioners of election of the county
in which the district is located to conduct a referendum to propose a change in the
tax millage of the district. Upon receipt of such request the commissioners of
election shall schedule and conduct the requested referendum on a date specified
by the governing body of the district.
If a majority of the qualified electors of the district voting in the referendum vote
in favor of the proposed tax millage change, the governing body of the district
shall by resolution adopt the new millage rate which shall thereupon have the full
force and effect of law.
SECTION 6-11-275. Increase in millage limitation; collection.
All special purpose districts totally located within a county, which were in
existence prior to March 7, 1973, and which have the statutory authority to
annually levy taxes for maintenance and operation are authorized to increase their
respective millage limitations upon the written approval of the governing body of
the county in which they are located. Any increase above the statutory limitation
must be approved each year.
Any such millage increase shall be levied and collected by the appropriate county
auditor and county treasurer.
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CODE OF LAWS OF SOUTH CAROLINA, 1976, TITLE 6, CHAPTER 11.
SPECIAL PURPOSE OR PUBLIC SERVICE DISTRICTS GENERALLY
ARTICLE 3.
ALTERATION OF BOUNDARIES OF SPECIAL PURPOSE DISTRICT AND
BOND ISSUES
SECTION 6-11-410. Definitions.
For the purposes of this article, the following terms shall have the following
meanings:
(a) “Special purpose district” shall mean any district created by act of the General
Assembly prior to March 7, 1973, and to which has been committed prior to
March 7, 1973, any local governmental function.
(b) “County board” shall mean the governing bodies of the several counties of the
State as now or hereafter constituted.
(c) “Commission” shall mean the governing body of any special purpose district
as now or hereafter constituted.
SECTION 6-11-420. Special purpose districts may be enlarged, diminished or
consolidated; general obligation bonds authorized.
The county boards of the several counties of the State are authorized to enlarge,
diminish or consolidate any existing special purpose districts located within such
county and authorize the issuance of general obligation bonds by such special
purpose district by the procedure prescribed by this article.
SECTION 6-11-430. Exercise of powers by county board; public hearing.
Each county board may, on its own motion, and shall, upon the petition of the
commissions of the special purpose districts to be affected, take the action
authorized by this article to enlarge, diminish or consolidate any special purpose
districts lying within such county. In each such instance, by resolution duly
adopted, the county board shall order a public hearing to be held for the purpose
of making a determination as to whether and to what extent a special purpose
district shall be enlarged, diminished or consolidated.
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SECTION 6-11-435. “Political subdivision” defined; provision of governmental
services in event of alteration of boundaries of special purpose district.
(A) For purposes of this section “political subdivision” means a municipality,
county, or special purpose district.
(B) A consolidated or enlarged special purpose district which results from action
taken pursuant to this chapter may not provide a governmental service to an area
within its boundaries to which it has not previously provided such service if an
overlapping political subdivision is authorized to provide that same service in the
area and the area is situated within the boundaries of such overlapping political
subdivision without the express authorization of the governing body of such
overlapping political subdivision. The governing body of the county shall
expressly provide by ordinance that the consolidated or enlarged special purpose
district shall not provide a governmental service to an area within its boundaries
within which an overlapping political subdivision is authorized to provide that
same service.
(C) If the boundaries of a special purpose district which provides waterworks or
sewer service are diminished in accordance with this article, the special purpose
district may continue to provide water or sewer services outside of its diminished
boundaries (1) in accordance with its enabling legislation, or (2) if provided by
the governing body of the county in the resolution required by Section 6-11-460,
pursuant to an intergovernmental agreement with one or more political
subdivisions authorized to provide the water or sewer service directly.
SECTION 6-11-440. Notice of hearing.
(A) The notice required by Section 6-11-430 must be published once a week for
three successive weeks in a newspaper of general circulation in the county. Such
notice must state:
(1) the time of the public hearing which may be not less than sixteen days
following the first publication of the notice;
(2) the place of the hearing;
(3) the nature of the change to be made in the special purpose district;
(4) a brief description of the new boundary lines to result if the proposed change
is made;
(5) the functions to be performed by the special purpose district;
(6) a summary of the reasons for the proposed change;
(7) the cost of proposed improvements, if any, and a statement as to the method to
be employed to raise the funds necessary for it; and
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(8) a statement of the amount and type of bonds, if any, then proposed to be
issued immediately following the change of boundaries of the special purpose
district.
(B) If a consolidated or enlarged special purpose district is, pursuant to this
chapter, precluded from providing a governmental service to an area within its
boundaries, the notice prescribed by subsection (A) also must include a
description of the area in which the governmental service will not be provided by
the special purpose district and shall identify the political subdivision which is
authorized to provide the service.
SECTION 6-11-450. Hearing.
Such hearing shall be conducted publicly and both proponents and opponents of
the proposed action shall be given full opportunity to be heard.
SECTION 6-11-455. Levying of ad valorem taxes in overlap areas.
If a consolidated or enlarged special purpose district is, pursuant to this chapter,
precluded from providing a governmental service to an area within its boundaries,
there must not be levied within the area ad valorem taxes for the purpose of
providing the service to the remaining portions of the special purpose district.
SECTION 6-11-460. Decision of county board.
Following the hearing the county board shall, by resolution, make a finding as to
whether and to what extent the boundaries of the special purpose district shall be
changed or whether the special purpose districts shall be consolidated. If such
finding be affirmative, such resolution shall redefine the boundaries of the special
purpose district in such fashion as to make possible appropriate entries in the
records of the county auditor and the county treasurer establishing the boundaries
of the special purpose district as reconstituted.
SECTION 6-11-470. Publication of action of county board.
(A) The county board shall give notice of its action to be published once a week
for two successive weeks in a newspaper of general circulation within the county
which shall state:
(1) the results of its action;
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(2) whether, pursuant to the remaining provisions of this article, bonds of the
special purpose district are then to be immediately issued, and, if so, the amount
of bonds and the method provided for their payment; and
(3) whether, pursuant to the provisions of Section 6-11-10, there will be a new
commission or changes made in the personnel of the old commission for the
special purpose district as enlarged, diminished, or consolidated.
(B) If a consolidated or enlarged special purpose district is, pursuant to this
chapter, precluded from providing a governmental service to an area within its
boundaries, the notice prescribed by subsection (A) also shall include a
description of the area in which the governmental service will not be provided by
the special purpose district and shall identify the political subdivision which is
authorized to provide the service.
SECTION 6-11-480. Challenge of county board’s decision in court.
Any person affected by the action of the county board may, by action de novo
instituted in the Court of Common Pleas for such county, within the twenty days
following the last publication of the notice prescribed by Section 6-11-470, but
not afterwards, challenge the action of the county board.
SECTION 6-11-490. County board may authorize issuance of general obligation
bonds.
If, in order to provide for the cost of any improvements, it is necessary that
general obligation bonds be issued the county board shall be empowered at any
time to authorize the applicable commission to issue general obligation bonds of
the special purpose district. Any county board may, but shall not be required to,
condition the issuance of general obligation bonds upon the result of a special
election held in the special purpose district as reconstituted and such election shall
be conducted in the manner and under the procedure made applicable to the
issuance of general obligation bonds of the counties of the State by the provisions
of Chapter 15, Title 4.
SECTION 6-11-500. Manner in which bonds shall be issued.
General obligation bonds of any special purpose district issued following
authorization of the county board, given pursuant to this article, shall be issued by
the commission on behalf of the special purpose district in accordance with the
provisions of Sections 6-11-490 through 6-11-600.
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SECTION 6-11-510. Maturity of bonds.
All bonds issued pursuant to this article shall mature in such annual series or
installments as the commission shall prescribe, except that the first maturing
bonds of any issue shall mature not later than three years from the date as of
which they shall be issued; no bond shall mature later than thirty years from the
date as of which it shall be issued.
SECTION 6-11-520. Redemption of bonds before maturity.
Any bonds issued pursuant to this article may be issued with a provision for their
redemption prior to their maturity at par and accrued interest, plus such
redemption premium as may be prescribed by the commission, but no bond shall
be redeemable before maturity unless it contains a statement to that effect. In the
proceedings authorizing the issuance of the bonds, provisions shall be made
specifying the manner of call and the notice thereof that must be given.
SECTION 6-11-530. Form of bonds.
The bonds issued pursuant to this article shall be in the form of negotiable coupon
bonds, payable to bearer, but may be issued with the privilege to any holder of
having them registered as to principal on the books of the treasurer of the county
in which the special purpose district is located, upon such conditions as the
commission may prescribe. Except when so registered, all bonds issued pursuant
to this article shall have all attributes of negotiable instruments.
SECTION 6-11-540. Denominations and places of payment of bonds.
The bonds issued pursuant to this article shall be in such denomination and shall
be made payable at such place or places, within or without the State, as the
commission shall prescribe.
SECTION 6-11-550. Interest on bonds.
Bonds issued pursuant to this article shall bear interest at a rate or rates
determined by the commission.
SECTION 6-11-560. Execution of bonds.
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The bonds, and the coupons to be thereunto attached, shall be executed in such
manner as the commission shall by resolution prescribe.
SECTION 6-11-570. Sale of bonds.
Bonds issued pursuant to this article shall be sold at a price of not less than par
and accrued interest to the date of their respective deliveries. All bonds
authorized by this article shall be sold at public sale, after public advertisement of
the sale in a newspaper of general circulation in South Carolina or a financial
journal published in the city of New York. The published notice shall appear not
less than seven days prior to the occasion set for opening bids.
SECTION 6-11-580. Tax and pledge of taxing power for payment of bonds.
For the payment of the principal and interest of all bonds issued pursuant to this
article, as they respectively mature, and for the creation of such sinking fund as
may be necessary therefor, the full faith, credit and taxing power of the special
purpose district shall be irrevocably pledged, and there shall be levied annually by
the auditor, and collected by the treasurer of the county in which the special
purpose district is located in the same manner as county taxes are levied and
collected, a tax without limit on all taxable property in the special purpose district
sufficient to pay the principal and interest of such bonds as they respectively
mature and to create such sinking fund as may be necessary therefor.
SECTION 6-11-590. Bonds exempt from taxes.
The principal and interest of bonds issued pursuant to this article shall have the
tax exempt status prescribed by Section 12-1-60.
SECTION 6-11-600. Disposition of proceeds of bonds.
The proceeds derived from the sale of any bonds issued pursuant to this article
shall be paid to the treasurer of the county in which the special purpose district is
located, to be deposited in a bond account fund for the special purpose district,
and shall be expended and made use of by the commission as follows:
(a) Any accrued interest shall be applied to the payment of the first installment of
interest to become due on such bonds.
(b) Any premium shall be applied to the payment of the first installment of
principal of the bonds.
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(c) The remaining proceeds shall be used to defray the cost of issuing bonds
authorized hereby, and to pay the cost of acquiring and constructing the necessary
improvements in the special purpose district.
(d) If any balance remains, it shall be held by the treasurer of the county in which
the special purpose district is located in a special fund and used to effect the
retirement of bonds authorized hereby.
SECTION 6-11-610. Changes in district commissions pursuant to modification
of districts.
If the county board shall have found that by reason of its action in enlarging,
diminishing or consolidating, there should be a new commission or changes made
in the personnel of the old commission for the special purpose district to result
from its action in order to provide for the proper functioning of the special
purpose district, then in such event it shall advise the Governor of its
recommendations. The number of commissioners shall be not less than three nor
more than nine. All members of any commission so altered shall hold office for
terms to begin upon their appointment and to end two years from the January first
following the date of the action of the county board, and the term of all other
members of the commission shall extend to and end on such date. All new
members to any commission shall be appointed by the Governor upon
recommendation of a majority of the legislative delegation of the county,
including the resident Senator or Senators, if any. Vacancies in office shall be
filled in like manner for the balance of the term of the person whom the appointee
is replacing. Following the expiration of the term of office of all members of the
commission (whether appointed pursuant to this article or otherwise) successors
shall be appointed in the manner provided by this section. All members of any
commission shall hold office until their successors shall have been appointed and
shall have qualified.
In instances where two or more special purpose districts petition the county board
for consolidation such petitions may prescribe that the members of the
commission of the consolidated special purpose district shall be selected in the
manner in which the members of the commission of any petitioning special
purpose district have heretofore been selected and for terms of office
commensurate with the terms of office of the members of the commission of any
petitioning special purpose district;
provided, that if the members of the
commission of any of the petitioning special purpose districts have been elected
by popular election, the members of the commission of the consolidated special
purpose district shall be elected by such election for terms of office commensurate
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with the terms of office of the members of the commission of any of the
petitioning special purpose districts.
SECTION 6-11-620. Powers of new commissions;
assume properties and liabilities of antecedent districts.
modified districts shall
Each commission created pursuant to the provisions of Section 6-11-610 shall
have all of the powers of the predecessor commission and in the case of any
consolidation, the new commission shall succeed to any and all powers enjoyed
by any of the preexisting districts so consolidated.
All districts modified pursuant to this article shall assume all properties and
liabilities of the antecedent district.
In instances where two or more special purpose districts petition the county board
for consolidation such petitions may prescribe the disposition of the properties,
assets and liabilities of the antecedent districts and may prescribe that for the
purpose of discharging any existing indebtedness such existing districts shall
continue as viable political entities under the government of the commission of
the consolidated district.
SECTION 6-11-630. Powers to issue revenue bonds shall not be affected by
article.
The power to utilize the provisions of general laws empowering commissions to
issue revenue bonds shall not be abrogated by the provisions of this article, but
shall continue, and revenue bonds issued pursuant thereto shall be issued in
accordance with the provisions of such general laws rather than in accordance
with the provisions of Sections 6-11-490 through 6-11-600 which relate only to
general obligation bonds.
SECTION 6-11-640. Powers granted by article shall be cumulative.
The powers and authorizations hereby conferred upon the commissions shall be in
addition to all other powers and authorizations previously vested in such
commissions, and may be availed of pursuant to action taken at any regular or
special meeting of the commission by a resolution to take effect immediately
upon its adoption.
SECTION 6-11-650. Exceptions to application of article.
The provisions of this article do not apply to special service districts organized for
historical purposes.
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