Are they really special?

By Charles Sowell  

DECEMBER 17, 2009 8:58 a.m. (0)

Special tax districts choke businesses by pandering to special interests and politics of the moment, say government, academic and business leaders.

Jim Fields of the Palmetto Institute in Columbia said inequities developed in the tax system over the past 10 to 15 years have penalized business overall, while benefiting some segments disproportionately.

Act 388, which was aimed at easing the tax burden on private real estate by substituting a one percent sales tax, resulted in tax benefits to people who owned homes worth more than $100,000. Business ended up shouldering 42 percent of the property tax burden and governmental bodies of all types (including special tax districts) were forced into a seemingly endless round of tax increases to make up for revenue shortfalls.

The tax districts, a byproduct of the Home Rule Act passed in the 1970s, were designed to let counties create a replacement system for special purpose districts that were phased out with home rule. The existing special purpose districts are all creatures of the legislature while tax districts are creations of local government – chiefly counties.

Tax districts allow residents to pay for desired services and skip the ones they think they don’t need.

“South Carolina’s tax structure can be a body slam for business,” said Joe Newton of the Appalachian Council of Governments. “I liken it to squeezing a balloon or a waterbed, when you put pressure on part of it things tend to bulge out of proportion in others.”

Newton lives in a tax district that pays for street lights and extra police protection. Most people are not aware that they live in a special tax district.

Special tax districts were a good way to provide services early on, critics say. They provide services at the consent of taxpayers. The problems began at about the same time as the state tax system started to become polarized.

Counties and cities were strapped for money to provide services and increasingly turned to tax districts to overcome caps on sources of revenue. The numbers of special tax districts began to skyrocket.

Today there are between 500 and 550 service providing districts of all kinds in the state, said a spokesman for the South Carolina Association of Special Purpose Districts. The group doesn’t know exactly how many exist, but Greenville and Spartanburg counties have the greatest concentration.

In Spartanburg County there are 55 service providing districts of all kinds (including fire and schools). One district is shared with Greenville County, a spokesperson for the county auditor said.

In Greenville County there are 69 districts, said Bob Mihalic, spokesman for the county.

“I remember visiting in Washington state about 25 years ago and hearing people talk admiringly about how balanced the South Carolina tax system was,” said Holley Ulbrich, a retired Clemson professor and fellow with the Strom Thurmond Institute. “Sometime in the 1990s things began to change in the legislature and we’ve ended up with a tax system that is essentially a moving target. That makes it hard for business to plan.”

“Overall, I’d say we have good relations with most of our special tax districts,” said Greenville County Council Chairman H.G. “Butch Kirven. “They are a nightmare to administer and there have been accountability problems.

“Frankly GADC (the Greenville Area Development Corporation) has done a wonderful job in coordinating with the special districts to provide services to incoming industry.”

Greenville County is poised to add another special tax district to the rolls in the coming year. If all goes well the Southern Greenville Water Improvement District (SGWID) will come into being in 2010 bringing Greenville Water System service to customers long without a dependable supply.

Don Schunk, a research economist at Coastal Carolina University, said businesses can be put off by the idea of dealing with so many service providing entities. SGWID would be the latest example of a tax-levying layer of government interposed between the actual service provider and customers.

“There’s little stability in a system like that,” he said. “The turf wars that can spring up coupled with what can be rapidly changing rates and tax structures isn’t something that attracts business and industry.”

Greer is one of the fastest growing cities in the Upstate and a big reason behind that growth is the array of services the city provides through its Commission of Public Works which provides water, sewer, trash, electricity and natural gas to city residents.

It’s a package deal for Greer residents and the city has been able to cooperate with competing service providing districts on its borders, said Ed Driggers, city administrator.

“We’ve shared fire houses with some districts,” he said. “That enables us to provide services to our residents without having to build extra stations.”

There have been disagreements over service areas and some of those have gone to court, but overall Greer has built a growing city based on its ability to provide much desired services, including zoning on the Spartanburg County side of town.

Spartanburg has no zoning law for unincorporated areas.

Driggers said North Carolina’s system of service provision is quite different that South Carolina’s.

“What is city is city up there,” he said. “And what is rural is rural. It has enabled them to build quite an impressive economic record.”

“It’s important to remember that special purpose districts have served their purpose well,” said Holley Ulbrich. “That has not been the case overall with special tax districts. The most efficient way to deliver services (fire, water, sewer and police) is through cities, but our annexation laws have hamstrung cities and the problem has been exacerbated by special tax districts.”