Statewide property tax could address S.C. school inequities

A House proposal that failed last year could form the foundation of a solution to South Carolina’s K-12 education-funding crisis.

The proposal would establish a statewide property tax rate to pay for schools. The taxes collected from businesses and industries would be distributed among the state’s 82 school districts, based on their student population.

Taxes from mega-industrial deals — including Boeing in Charleston County, BMW in Spartanburg County, nuclear reactors in Fairfield County and tire makers in Sumter and Aiken counties — would be spread among all schools across the state’s 46 counties, helping eliminate the disparity in the amount of money that industry-poor rural counties now have to spend on schools.

For 25 years, the plan would ensure that wealthier school districts do not see their budgets cut. But, after that, taxpayers in districts could find themselves subsidizing schools in poorer areas of the state.

The plan has caught the eye of incoming State Schools Superintendent Molly Spearman of rural Saluda County.

“I’ve seen firsthand the disparity, but I’ve also seen firsthand the lack of opportunity of raising revenue locally,” Spearman said.

State Rep. Jenny Horne, R-Dorchester, introduced the bill — called the S.C. Jobs, Education and Tax Act — during the last legislative session. The bill died in committee. But Horne plans to pre-file the bill again this year.

The proposal also would:

Spearman said she supports the spread-the-wealth idea behind the plan, which potentially could answer a recent Supreme Court ruling saying the state has failed to provide a “minimally adequate” education to S.C. students in the poorest districts.

“I support a plan that will be more streamlined, more equitable for all,” said Spearman, who takes office in January.

‘Those textile mills have left’

A decade ago, Spearman testified in that court case — Abbeville County School District v. State of South Carolina — about her own experience with school inequality.

Spearman, a former teacher and administrator, had transferred back to her home school district in Saluda County after working in the Lexington-Richland 5 district.

The equipment, materials and facilities in rural Saluda were far different than those in the more affluent school district, she said.

Since then, Saluda County has made improvements, Spearman said. But, she added, inequities still exist statewide.

The state’s current Education Finance Act, one law setting how South Carolina pays for schools statewide, was written when every community had at least one textile mill, forming the foundation of a tax base to spread the burden of paying for schools, Spearman said.

“Those textile mills have left many, many communities and now the burden of funding the schools often lies on the backs of just a few small businesses,” she said.

Some affluent school districts also can draw on additional support from businesses, foundations and philanthropists, Spearman said. But rural areas don’t have those resources, she said.

The S.C. Jobs, Education and Tax Act aims to address those inequities.

The plan is supported by the S.C. School Boards Association, S.C. Association of School Business Officials and S.C. Association of School Administrators, which Spearman led for a decade before running for schools superintendent.

‘A level playing field’

The plan would establish a statewide property tax to provide uniformity across the state.

Now, tax rates, set by school districts in many cases, range across districts.

Major differences exist in those rates. Districts with strong tax bases to draw on can set low rates, allowing them to attract even more businesses and industries looking for low-tax locations. Meanwhile, districts with little industry have to set higher tax rates to collect enough money to operate their schools. Those higher taxes are a disincentive to attracting new industries or businesses.

Horne’s proposal could help rural areas attract more businesses and industries because those firms would no longer have to pay higher school taxes, unless the districts decide to increase their local taxes.

“What that does is create a level playing field for economic development in the state,” said Scott Price of the School Boards Association.

‘A statewide perspective’

The plan also would include about $600 million in tax relief for businesses, industries and other properties that currently are paying higher school taxes than the new statewide rate, Price said.

Now, when an industry comes into a community, it benefits just one school district, its new home, Spearman said. But the company’s employees, many of whom commute from surrounding areas, do not reap any benefit for their children in their school districts, she said.

For example, Fairfield County has the V.C. Summer nuclear plant, which generates a lot of revenue for Fairfield County, Horne said. But workers at the plant, now being expanded to include two new multi-billion-dollar reactors, commute to work from across the Midlands. If Horne’s proposal becomes law, taxes collected on the reactors would be spread across the state.

Other areas that benefit from major industries include Greenville with BMW, Charleston with Boeing, Sumter with Continental Tire and Aiken with Bridgestone.

The money collected from those industries also would be spread across the state.

However, homeowners’ taxes on their primary residences would not increase.

The money raised under Horne’s plan — along with other money now raised for education, including money from the state’s 6 percent sales tax – would be distributed to schools based on a set amount per student.

Districts that now raise more money for schools than the state would give them, under Horne’s plan, would be given transition money by the state. That money would keep their spending at the same level as prior to the plan. However, that would cost the state an estimated $335 million, or 4.5 percent of the state’s general fund.

“No district is harmed by our plan,” Price said.

But there would be a 25-year phase-out period for the transition money. After that period, all school districts would receive money based only on their student population.

When the transition period ends, some of the money raised by wealthier districts would be transferred to poorer districts, those without as much industry.

That could anger parents, taxpayers and others stakeholders in more affluent districts.

“Having folks agree to a statewide perspective — (instead of) what’s just best for their own community — is always a difficult thing to resolve,” Spearman said.

‘Nod to local decision-making’

In the current state budget, about 70 different funding streams send money to schools with the amount determined by almost as many distribution formulas, Price said.

The Jobs, Education and Tax Act would simplify that complexity by reducing the number of funding sources and allowing districts more flexibility in spending the money, advocates say.

“It’s a nod to local decision making,” Price said. “We rolled these different pots of money together, and we distribute it back to the districts, so every child in every district gets the same amount of money,” except for students with disabilities, who would continue to receive more money.

Another nod to local school districts would allow them to raise more money than the state gives them by levying additional local taxes if voters approve.

If approved by voters, the higher taxes would apply to all property, including owner-occupied homes, currently exempt from school operating taxes.

‘Relevant to today’s economy’

The S.C. Jobs, Education and Tax Act could be a starting point for the General Assembly to respond to the Supreme Court’s Abbeville decision, Horne said.

But, Spearman added, passing Horne’s proposal will be a challenge.

“It’s a local district versus what’s best for the state (situation),” Spearman said, adding she anticipates opposition. “That’s going to be a question that the statesmen in the Legislature will have to decide on.”

Ultimately, the plan aims to address the state’s 30-year-old, hodgepodge formula for paying for schools, Horne said, adding her proposal could be changed during the legislative process.

“(It) is time to update it, and make it more relevant to today’s economy and today’s educational needs,” she said.