An intergovernmental battle brewing for years is about to come to a head at the Statehouse. At stake: Millions of dollars for local governments from state taxes.
On one side are conservative House members who want to change the way the state reimburses local governments for services they long have provided to state agencies — things like county-owned courtrooms used by state judges, space for state agencies to operate locally and funding of county election commissions, which operate under state rules.
On the other side are many local governments, particularly counties, that say the state has failed to provide the mandated amount of tax relief that it promised 24 years ago. To change a formula now with a different promise that could be broken just as easily in the future doesn’t make sense, they say.
A House Ways and Means subcommittee on the bill didn’t occur this week as scheduled, but is expected to be held next week where the battle over different perspectives will see the bright light of day.
One side: Change the formula
State Rep. Jim Merrill, R-Charleston, doesn’t want to get rid of the Local Government Fund, which is worth $212.6 million in the current budget. He just wants it to reflect current fiscal realities.
Merrill says he and other House members have been working for two years to change the current formula on how the Local Government Fund gets its money. Why? Because competing priorities at the state level — roads, schools, health care — make it difficult to send piles of money to local governments when other areas are screaming for relief. Priorities, they note, change. See their bill, H. 3374.
Back in 1991, the state approved a law to require 4.5 percent of the state’s general fund revenue of the latest full fiscal year to go to the fund. Twenty-four years ago, the state budget was $3.6 billion; now it is $6.6 billion, Merrill wrote in a Jan. 15 letter with bill co-sponsor and Ways and Means Chairman Brian White, R-Anderson.
The last time that the Local Government Fund received its 4.5 percent mandated share was at the start of the Great Recession in the 2008 fiscal year. Since then, it’s been short. In 2014-15, they wrote, the fund would need an extra $107.2 million to meet the 4.5 percent requirement.
“The money is just not there,” Merrill said in an interview. “If you haven’t received the full share of the money in years, it’s hard to argue that you’re going to be getting 4.5 percent. There are different needs [now] than there were 25 years ago.”
So what Merrill and White proposed is to change the formula by setting a new base amount from which decisions will be made. A major component of the proposal would no longer tie the amount of annual funding to the amount of general fund revenue from a previous year’s budget. Instead, it would be related to current year revenue estimates provided by the state Board of Economic Advisers.
Such a structure would make the fund better reflect current economic conditions instead of what was happening the previous year. And that would have two impacts. If the current year is healthier than the previous one, revenues to the fund would tend to be greater than under the old formula. But if estimates were lower because of a recession — a time when tax revenues tend to be less robust — then the state wouldn’t have to pay a disproportionate share based on the earlier year’s rosier climate.
The Merrill-White effort, however, adds another hitch that local governments don’t like. In years that the state’s general fund revenues don’t grow at least 4 percent, payments to the Local Government Fund would stay the same as the previous year. And if it achieved a 4 percent rate of growth, the Fund would increase automatically … by 2 percent.
A different view: Honor the commitment
The SC. Association of Counties is strongly opposed to the Merrill-White bill, H. 3374. The association, in fact, supports a measure by state Rep. Eddie Southard, R-Berkeley, that would require the state to do what it promised in 1991 — to fully-fund local government tax relief. Southard’s bill has 39 cosponsors.
Tim Winslow, assistant general counsel at the association, said the Merrill-White bill to reduce the mandated state contribution to the fund would break a 1991 promise to taxpayers to provide property tax relief.
“It’s kind of a sham,” he said. “Why should we agree to promises made now when they refuse to meet the promises they made then?”
If the Local Government Fund were reduced, it would mean two possibilities at the county level — higher taxes for services that aren’t reimbursed by the state or fewer local services.
Berkeley County Supervisor Bill Peagler said the proposal to change the Local Government Fund formula ignores the reality of inflation.
“The costs of providing the state’s mandated services have increased and will continue to increase,” he said in a statement. “If the state wants counties and municipalities to fund its services, then the state needs to provide the necessary and promised resources to allow us to do so without further burdening our taxpayers.
“Representative Southard’s plan would certainly be more secure and immediately advantageous to the county. It would provide us with the resources promised to take on the state’s mandated services. We, as a county, simply cannot continue to cover the shortfall any longer,” adding that Berkeley County residents have shouldered $10 million in state aid reductions since 2009.
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