ACT 388
PROPERTY TAX REFORM
John Butler
Theodore B. DuBose
Chief Financial Officer
Attorney
Lexington Co. School District No. 1
Haynsworth Sinkler Boyd, P.A.
Lexington, SC
Columbia, SC
At A Glance
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Passed in 2006
Effective June 1, 2007, increased the state sales tax
by 1 cent
Reduced the sales tax on unprepared foods (All sales
tax on unprepared foods was subsequently
eliminated)
Provided an exemption of owner-occupied residential
property from school operating millage
Created the Homestead Exemption Fund
Placed a limitation on millage rate increases for all
local governing bodies
Homestead Exemption Fund
(HEF)
 Proceeds
from the additional penny sales tax
are credited to a fund separate and distinct for
the state general fund
 The Board of Economic Advisers shall make
an annual estimate of the receipts by the HEF
by February 15
 This estimate must be provided to the
legislature and each school district and county
Homestead Exemption Fund
(HEF)
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In 2007, additional legislation created three “tiers”:
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Tier I is the amount received by a district for the first $100,000 of
assessment on owner-occupied property
Tier II is the amount a district receives for the first $50,000 for
taxpayers age 65 or older or those totally and permanently disabled
Tier III, for FY 2007-08, consists of an amount equal dollar for
dollar to the revenue that would be collected by the district from
property tax for school operating purposes imposed by the district
on owner-occupied residential property for that fiscal year as if no
reimbursed exemptions applied reduced by the total of the district's
tier one and tier two reimbursements
Distribution of Revenue
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Beginning with FY 2007-08 school districts were reimbursed
for the actual amount that was to be collected from school
operating millage imposed on owner-occupied residential
property
Beginning with FY 2008-09 the aggregate reimbursements are
increased annually by an inflation factor equal to the
percentage increase in the CPI, SE Region plus the percentage
increase in the population of the State as published by the
Office of Research and Statistics multiplied by the prior year’s
total reimbursements
An additional add-on weighting for poverty of .20 was added
to provide additional revenues for students in K-12 who
qualify for Medicaid or are eligible for free and/or reduced
lunches
Distribution of Revenue (Continued)
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Beginning with FY 2008-09 , a school district receives
reimbursement for the amount received in prior year plus a
proportionate share of the increase above based on of district’s
WPU’s as a percentage of statewide WPU’s
Any county that did not raise a minimum of $2.5 million from
school operating millage must receive and additional
reimbursement from the HEF to bring the reimbursements to
districts in that county to at leas $2.5 million
Multi-district counties qualifying for the additional reimbursement
would split the funds based on 135 Day ADM of the district divided
by the total ADM of all students of the districts in the county
Any funds remaining after all of the above obligations have been
met must be distributed to counties for a credit against county
operations on owner occupied property taxes
Millage Limitation
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A local governing body may increase millage for general
operating purposes above the rate for the previous year only to
the extent of the increase in the average CPI for the most
recent 12 month period, plus the percentage increase in the
previous year increase in the population of the entity
Negative population growth was later amended to be zero for
purposes of this computation
The millage rate limitation may be suspended and the millage
rate may be increased upon a 2/3 vote or the local governing
body, but only for 5 purposes stated in Act 388
The restriction does not affect millage for levied for bonded
indebtedness or used to maintain a reserve account
Five Authorized Purposes for
Suspending the Millage Limitation
1
2
3
The deficiency of the preceding year;
Any catastrophic event outside the control of
the governing body such as a natural disaster,
severe weather event, act of God, or act of
terrorism, fire, war, or riot;
Compliance with a court order or decree;
Five Purposes for Suspending the
Millage Limitation (cont.)
4
5
Taxpayer closure due to circumstances outside
the control of the governing body that decreases
by ten percent or more the amount of revenue
payable to the taxing jurisdiction in the preceding
year; or
Compliance with a regulation promulgated or
statue enacted by the federal or state government
after the ratification date of this section for which
an appropriation or a method of obtaining an
appropriation is not provided by the federal or
state government.
School Districts’
Perspective
Growth
 Act
388 adversely affects fast growing
districts.
 Act 388 helps slow growing, no growth or
declining districts or districts that receive the
$2.5 million.
Growing Districts
$45,000,000.00
$43,000,000.00
$41,000,000.00
$39,000,000.00
$37,000,000.00
$35,000,000.00
$33,000,000.00
$31,000,000.00
$29,000,000.00
$27,000,000.00
$25,000,000.00
Act 388 Funds
Res. Tax
Amount
2007-08 2008-09 2009-10 2010-11
Proj.
Declining Districts
$40,000,000
$38,000,000
$36,000,000
$34,000,000
$32,000,000
$30,000,000
$28,000,000
$26,000,000
$24,000,000
$22,000,000
$20,000,000
Act 388 Funds
Res. Tax
Amount
2007-08
2008-09
2009-10
$2.5 Million Districts
$3,000,000
$2,500,000
$2,000,000
$1,500,000
Act 388 Funds
$1,000,000
Res. Tax
Amount
$500,000
$0
2007-08
2008-09
2009-10
Effect on Per Pupil Revenue
Growing Enrollment Districts
Year
WPUs Allocation
Per WPU
2008
10,000 $ 20,000,000
$ 2,000
2009
11,000 $ 20,500,000
$ 1,864
2010
12,000 $ 21,000,000
$ 1,750
2011
13,000 $ 21,500,000
$ 1,654
2012
14,000 $ 22,000,000
$ 1,571
2013
15,000 $ 22,500,000
$ 1,500
Effect on Per Pupil Revenue
Declining Enrollment Districts
Year WPUs
Allocation
Per Pupil
2008
10,000 $ 20,000,000
$ 2,000
2009
9,500 $ 20,300,000
$ 2,137
2010
9,000 $ 20,600,000
$ 2,289
2011
8,500 $ 20,900,000
$ 2,459
2012
8,000 $ 21,200,000
$ 2,650
2013
7,500 $ 21,500,000
$ 2,867
State Funds
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Growing districts receive less state money since their
Education Finance Act (EFA) amount is based on their
owner-occupied assessments and not the amount they
receive from Act 388.
 Declining districts receive more state money since their
EFA amount is based on their owner-occupied
assessments and not the amount they receive from Act
388.
 If there is no change in legislation this year this will
correct itself for 2010-11, but there was legislation filed
last year that would leave this inequity in place and
probably will be introduced again this year.
Millage
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Districts are restricted to how much millage they can
increase and a mill is worth much less than it was
prior to Act 388.
 The more owner-occupied property a district has, the
greater the decline in a value of a mill since owneroccupied assessments are not included in the value
now.
 This also means that any new mills added will be
entirely assessed against business and other non
owner-occupied property.
Property Reclassification
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2007-08 was the base year where DOR used the owneroccupied assessments and each district’s millage rate to
determine the dollar for dollar reimbursement to
districts.
 Some taxpayers that had 6% property in 2007-08, which
is still taxed for school operations, reclassified it to 4%
property after the base year in order to obtain the 100%
exemption from school operating taxes.
 Therefore, no tax is now collected on it and it is
excluded in the amount the state uses to reimburse
districts.
Re-assessment
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The value of property may not be increased by reassessment
more than 15%, except in the case of an “assessable transfer of
interest.”
 Legislation debated in 2010 but not passed would have deleted
assessable transfer of interest exception.
 According to a report from the state’s Chief Economist given to
Government Finance Officers in December of 2008, this will
have a greater adverse effect on school districts than Act 388 in
the long term.
 This was enacted as a result of a constitutional amendment
through a state-wide vote by citizens.
 Bright spot: For the purpose of calculating debt limit, assessed
value shall not be lower than 2006 assessed value.
IMPACT OF 15% CAP ON REASSESSMENT:
LOST REVENUE, LOST DEBT LIMIT
Year
Assuming
Three Percent 15% Cap on
25% Growth
Annual Growth Reassessment Over 5 Years
2006
$150,000,000 $150,000,000 $150,000,000
Amount of
Value Not
Taxed
2011
173,891,111
172,500,000
187,500,000
8.70%
2016
201,587,457
198,375,000
234,375,000
18.15%
2021
233,695,112
228,131,250
292,968,750
28.42%
Assuming total millage rate of 253 mills, annual
lost revenue in 2021 would exceed $16,200,000.
By 2021, lost debt limit capacity would be
approximately $5,200,000.
IMPACT OF 15% CAP ON REASSESSMENT:
UNEQUAL TAX BURDEN
House Built
in the Year 2005
House Built
in the Year 2011
House Built
in the Year 2016
House Built
in the Year 2021
Year
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$200,000
200,000
200,000
200,000
200,000
230,000
230,000
230,000
230,000
230,000
264,500
264,500
264,500
264,500
264,500
304,175
$250,000
250,000
250,000
250,000
250,000
287,500
287,500
287,500
287,500
287,500
330,625
$312,500
312,500
312,500
312,500
312,500
359,375
$390,625
Assuming a total millage rate of 253 mills, by 2021, tax on identical
properties would vary by as much as $875.
Avoiding The Millage Cap
Using Your Debt Limit for
Capital Expenditures
Simple
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Counties and municipalities may issue general
obligation debt for any corporate purpose.
Many counties and cities use general fund millage to
fund capital expenditures.
Consider using general obligation bond funds, instead
of general funds, to fund capital expenditures.
Bonds can be issued for short period, keeping interest
costs at a minimum.
Owing to petition rules, timing is critical.
Not as Simple
 Act
388 makes it difficult in some cases to
engage in lease-purchase financings for
equipment and other capital items.
 Consider using proceeds of general obligation
bonds to make payments on lease-purchase
agreements.
 Again, timing is critical.
 Additional wrinkle for school districts—
installment payments.
SEVEN YEAR LEASING PLAN
Separate lease agreements for each FY
All payments due in a FY on all leases repaid through short term g.o. bond.
FY 2010-2011
Fire Engine
Vehicles
Truck
Rescue
1
2
1
1
250,000
200,000
40,000
80,000
Total for Year
FY 2011-2012
Fire Engine
Large Ambulance
Sanitation
1
2
1
250,000
200,000
140,000
Total for Year
FY 2012-2013
Public Works Vehicle
Pickup Truck
Ambulance
Total for Year
1
2
1
250,000
40,000
140,000
$
250,000
400,000
40,000
80,000
$
770,000
$
250,000
400,000
140,000
$
790,000
$
250,000
80,000
140,000
$
470,000
FY 2013-2014
No vehicles for the year
FY 2014-2015
Public Works Equipment
Motor Pool
2
10
250,000
28,000
Total for Year
FY2015-2016
Fire Engine
Rescue
Pickup
Sheriff's Dept Vehicles
1
2
2
5
$
500,000
280,000
$
780,000
250,000
100,000
40,000
28,000
Total for Year
250,000
200,000
80,000
140,000
$
670,000
$
500,000
280,000
Total for Year
$
780,000
GRAND TOTAL
$
4,260,000
FY 2016-2017
Sanitation
Motor Pool
4
10
125,000
28,000
SEVEN YEAR LEASING PLAN
Separate lease agreements for each FY
All payments due in a FY on all leases repaid through short term g.o. bond.
PRO FORMA SCHEDULE OF LEASE PURCHASE AGREEMENTS.
Payments on Payments on Payments on Payments on
Payments on Payments on Payments on
Total
Fiscal
$770,000
$790,000
$470,000
$0
$780,000
$670,000
$780,000 Annual Lease
Year
2011 Lease 2012 Lease 2013 Lease 2014 Lease 2015 Lease 2016 Lease 2017 Lease
Payment
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$167,677
167,677
167,677
167,677
167,677
$172,033
172,033
172,033
172,033
172,033
$102,385
102,385
102,385
102,385
102,385
$169,855
169,855
169,855
169,855
169,855
$145,901
145,901
145,901
145,901
145,901
$169,855
169,855
169,855
169,855
169,855
$167,677
339,710
442,095
442,095
611,950
590,174
587,996
485,611
485,611
315,756
169,855
SEVEN YEAR LEASING PLAN
Separate lease agreements for each FY
All payments due in a FY on all leases repaid through short term g.o. bond.
SCHEDULE AND ESTIMATED MILLAGE IMPACT OF BOND ISSUES
Fiscal
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
Lease
Payment
Due
$167,677
339,710
442,095
442,095
611,950
590,174
587,996
485,611
485,611
315,756
169,855
3.50%
Bond
Three
Issue
Months
Amount Interest
Total
Debt
Service
$176,677
348,710
451,095
451,095
620,950
599,174
596,996
494,611
494,611
324,756
178,855
$178,223
351,761
455,042
455,042
626,383
604,417
602,220
498,939
498,939
327,598
180,420
$1,546
3,051
3,947
3,947
5,433
5,243
5,224
4,328
4,328
2,842
1,565
Mill
Value
$100,000
100,500
101,003
101,508
102,015
102,525
103,038
103,553
104,071
104,591
105,114
Millage
Required
1.78
3.50
4.51
4.48
6.14
5.90
5.84
4.82
4.79
3.13
1.72
Bonds will be issued in December of each year and paid off in March 1 of the following year.