posting
03-22-2006, 06:11 PM
The View From Myrtle Beach by Richard Tindal
This is the third in an occasional series of articles depicting the similarity of local government issues north and south of the border.
Be Careful What You Wish For: Property Tax Reform
In the first article in this series, I discussed the controversy in Myrtle Beach and surrounding areas concerning increased assessment values and property taxes, and noted that the state government was considering an increase in the sales tax as an alternative. That plan has now progressed to the state legislature, where a so-called property reform proposal is on the verge of passage. As with many initiatives conceived in response to one particular problem, this one is likely to give rise to other problems of even greater magnitude - as is now starting to become evident.
It is acknowledged that only about 20% of property taxpayers actually need relief, and they are concentrated in the areas adjacent to the Atlantic Ocean where there has been an explosion of condo construction. Even though the annual vacancy rate for condos is close to 50% and even though the rents that are charged do not cover carrying costs, new condos are almost completely pre-sold before they are built. The only explanation is that many buyers expect to "flip" the units within a few months for a substantially higher price. So far, this tactic appears to have worked, but in the process all property values in the affected areas have generally been pulled upward in this market. As a result, there are doubtless some homeowners not involved in this speculative process who are finding the increased property assessments and taxation burdensome.
As we discovered when Ontario municipalities experienced the reform of assessment and property taxation, however, the result can be shifts in tax burden that were not anticipated or that create greater inequities than those that prompted reforms. In this case, actions are being taken to ease the burden on 20% of the property taxpayers, including many who are facing increased tax burdens because they live in homes that are now worth a great deal of money. The "solution" to this problem will be to increase the state sales tax from 5% to 7%, with the increased revenues thus obtained being used to finance municipal services in place of the property tax. The sales tax is at least as regressive as the property tax - I would argue more so. Regardless of their income, all residents will have to pay the increased sales tax, so even the poorest in the state will see their taxes increase to subsidize those who live in expensive homes.
But there is an even more troubling issue inherent in this tax reform, and I am pleased to see that it was finally addressed in a recent article in the Myrtle Beach newspaper by a professor from a local college. [Those college professors are a perceptive lot.] The state government initiative isn't really about property tax reform, or at least that is not its primary thrust. It is about shifting the financing of municipal services from the local level to the state level. It is, therefore, about undermining the independence of municipal government in the most fundamental way. At present, municipalities can obtain funds for local services by raising property taxes - however unpopular that action may be. If this reform proposal is passed, municipalities will no longer have this local discretion. They will be dependent on the state government for their revenues (to be derived from the increased sales tax). Yes, the state government will doubtless make lots of promises about committing a certain level of funding to municipalities - but we all know that any such commitment only lasts as long as a change in administration or a change in priorities and financial pressures facing the state government.
Consider what has happened to school boards in Ontario, as a result of property tax reforms in that province. They no longer have the power to determine their revenue needs and to levy property taxes accordingly - which they did by directing municipalities within their geographic boundaries to act as their tax collection agent. The Ontario government now has total control over the funds for education, through the grants that it provides and through the education tax rate that it establishes annually. Those who wish to see increased financial resources allocated to education now have no say at the local level, even though they still elect school boards. Their only real option is to plead with the provincial government for increased support.
That is exactly the position that South Carolina municipalities will be in if the current property tax reform proposal is passed in this state. They will be dependent on state largesse to obtain the funds that they need to deliver local services. Without the capacity to raise a substantial portion of the funds that they need through their own actions, they will become but a shell of a municipal government. Their looming fate should serve as a cautionary tale for those in Ontario who seek property tax relief without considering carefully the consequences that can arise from any such
initiative.
The other articles in this series can be found at the following links:
The View From Myrtle Beach: Property Taxes Are Beloved Everywhere (http://www.kingstonelectors.ca/forums/showthread.php?t=1204)
The View From Myrtle Beach: Taking the Bus (http://www.kingstonelectors.ca/forums/showthread.php?t=1203)
The View From Myrtle Beach: Be Careful What You Wish For - Property Tax Reform (http://www.kingstonelectors.ca/forums/showthread.php?t=1202)
The View From Myrtle Beach: What If Patients Were Revenues Instead of Costs? (http://www.kingstonelectors.ca/forums/showthread.php?t=1201)
The View From Myrtle Beach: Rocky Movies and Property Tax Reforms (http://www.kingstonelectors.ca/forums/showthread.php?t=1200)
This is the third in an occasional series of articles depicting the similarity of local government issues north and south of the border.
Be Careful What You Wish For: Property Tax Reform
In the first article in this series, I discussed the controversy in Myrtle Beach and surrounding areas concerning increased assessment values and property taxes, and noted that the state government was considering an increase in the sales tax as an alternative. That plan has now progressed to the state legislature, where a so-called property reform proposal is on the verge of passage. As with many initiatives conceived in response to one particular problem, this one is likely to give rise to other problems of even greater magnitude - as is now starting to become evident.
It is acknowledged that only about 20% of property taxpayers actually need relief, and they are concentrated in the areas adjacent to the Atlantic Ocean where there has been an explosion of condo construction. Even though the annual vacancy rate for condos is close to 50% and even though the rents that are charged do not cover carrying costs, new condos are almost completely pre-sold before they are built. The only explanation is that many buyers expect to "flip" the units within a few months for a substantially higher price. So far, this tactic appears to have worked, but in the process all property values in the affected areas have generally been pulled upward in this market. As a result, there are doubtless some homeowners not involved in this speculative process who are finding the increased property assessments and taxation burdensome.
As we discovered when Ontario municipalities experienced the reform of assessment and property taxation, however, the result can be shifts in tax burden that were not anticipated or that create greater inequities than those that prompted reforms. In this case, actions are being taken to ease the burden on 20% of the property taxpayers, including many who are facing increased tax burdens because they live in homes that are now worth a great deal of money. The "solution" to this problem will be to increase the state sales tax from 5% to 7%, with the increased revenues thus obtained being used to finance municipal services in place of the property tax. The sales tax is at least as regressive as the property tax - I would argue more so. Regardless of their income, all residents will have to pay the increased sales tax, so even the poorest in the state will see their taxes increase to subsidize those who live in expensive homes.
But there is an even more troubling issue inherent in this tax reform, and I am pleased to see that it was finally addressed in a recent article in the Myrtle Beach newspaper by a professor from a local college. [Those college professors are a perceptive lot.] The state government initiative isn't really about property tax reform, or at least that is not its primary thrust. It is about shifting the financing of municipal services from the local level to the state level. It is, therefore, about undermining the independence of municipal government in the most fundamental way. At present, municipalities can obtain funds for local services by raising property taxes - however unpopular that action may be. If this reform proposal is passed, municipalities will no longer have this local discretion. They will be dependent on the state government for their revenues (to be derived from the increased sales tax). Yes, the state government will doubtless make lots of promises about committing a certain level of funding to municipalities - but we all know that any such commitment only lasts as long as a change in administration or a change in priorities and financial pressures facing the state government.
Consider what has happened to school boards in Ontario, as a result of property tax reforms in that province. They no longer have the power to determine their revenue needs and to levy property taxes accordingly - which they did by directing municipalities within their geographic boundaries to act as their tax collection agent. The Ontario government now has total control over the funds for education, through the grants that it provides and through the education tax rate that it establishes annually. Those who wish to see increased financial resources allocated to education now have no say at the local level, even though they still elect school boards. Their only real option is to plead with the provincial government for increased support.
That is exactly the position that South Carolina municipalities will be in if the current property tax reform proposal is passed in this state. They will be dependent on state largesse to obtain the funds that they need to deliver local services. Without the capacity to raise a substantial portion of the funds that they need through their own actions, they will become but a shell of a municipal government. Their looming fate should serve as a cautionary tale for those in Ontario who seek property tax relief without considering carefully the consequences that can arise from any such
initiative.
The other articles in this series can be found at the following links:
The View From Myrtle Beach: Property Taxes Are Beloved Everywhere (http://www.kingstonelectors.ca/forums/showthread.php?t=1204)
The View From Myrtle Beach: Taking the Bus (http://www.kingstonelectors.ca/forums/showthread.php?t=1203)
The View From Myrtle Beach: Be Careful What You Wish For - Property Tax Reform (http://www.kingstonelectors.ca/forums/showthread.php?t=1202)
The View From Myrtle Beach: What If Patients Were Revenues Instead of Costs? (http://www.kingstonelectors.ca/forums/showthread.php?t=1201)
The View From Myrtle Beach: Rocky Movies and Property Tax Reforms (http://www.kingstonelectors.ca/forums/showthread.php?t=1200)