Miriam Hair's remarks to the Senate Finance Special subcommittee
Thank you Mr. Chairman and members of the subcommittee. My name is Miriam Hair and I am the executive director of the Municipal Association of SC, representing all 270 cities and towns throughout the state. I want to thank you for allowing me to briefly speak to you this morning about this very important issue.
I would like to start by reflecting on the original intent of the provision of Act 388 that limits for tax purposes the increase in the fair market value of real property to no more than 15 percent within a five-year period.
The reason for this provision was to insulate homeowners living in an area with rapidly increasing property values from being “taxed out of their homes.”
In other words, those folks who had lived in their homes for some time would not be unduly burdened by property taxes as more expensive homes were built in their neighborhood pushing their property values higher and higher. The result of Act 388, some homeowners now pay on 100% of their home’s value and others pay on only a portion of their home’s value.
A provision of Act 388 declares that once an assessable transfer of interest occurs, the property is placed on the tax rolls at 100 percent of fair market value. This is fair since the person purchasing the home or property is well aware of the value of the home or property at the time of purchase and is not in the situation that the original intent of the cap was meant to protect – the long-time home owner with an inability to control the increase in the value of their home due to more expensive homes being built close by.
The realtors will argue that our economy is in serious trouble and that not passing these below market property values to the new home owner is stifling real estate sales. Yes, I would agree, the economy is hurting in every hometown in South Carolina, but the passage of this bill will not change our economic situation or solve the home mortgage or credit crisis facing every state in America. We must remember that passage of this bill may help a realtor sell an expensive home, but that sale comes at the expense of those who own homes in the neighborhoods that are not appreciating at a rate of 15 percent or more over a five-year period. I would argue that these are the home owners who are struggling and can least afford to pay in these tough economic times. There is no doubt passage of S435 will shift more of the city’s property tax burden to these home owners in neighborhoods least able to pay.
This proposed bill will not correct the inequities created by Act 388 – some property owners paying on 100 percent of the value of their property and some at a much lower percentage of value. It will only extend to new home owners the tax breaks intended for long-term home owners.
The only thing that this bill will ensure is that home owners living in lower valued properties will fund an even greater portion of local government budgets.
The inequities created by Act 388 needs greater study and any changes must be part of a comprehensive look at our state’s tax policy including Act 388. We must remember that a tax break given to one person must be paid by another. Such tax breaks are the reasons consideration is begin given today to creating the Taxation Realignment Commission. The Municipal Association strongly supports this Commission and its holistic approach to updating the tax structure in our state.
A Ways and Means’ subcommittee is meeting this afternoon to debate both the house and senate version of the TRAC bills. I urge you to let that Commission consider what changes are needed to Act 388.
In conclusion, let me point out three other impacts that passage of S435 will have on cities.
First, by reducing the tax value of sold properties below the fair market value, the total assessed value of all city property will be reduced. This will lower the debt limit of cities even further since this limit is based on 8 percent of the city’s total assessed value.
Second, when the city’s total assessed value is decreased, the value of a mill is decreased. The result is the revenue that cities can raise today under a restrictive millage cap will be even less tomorrow under this same cap.
And third, property owners are the beneficiaries of the basic services of cities and towns - police, fire, water, sewer and in some cases electricity. They also are the beneficiaries of city amenities such as parks and the revitalization of commercial districts. These services are critical to their decision to purchase property in a city and therefore these new property owners should pay on 100 percent of the value of their property at the time of the sale to fund these beneficial services.
Thank you for your consideration of these issues.