Final Thoughts: Reassessment Overcharge
by Alex Saitta
September 23, 2006
I don't want to beat this issue to death, but there are two final points I want to make, given the recent comments about this issue in the Greenville News.
In September 2005, the school board did not follow the law, when it set the rollback millage rate after the property reassessment.
Recently, the excess or overcharge was identified as $1.6 million. That is incorrect. It was $2.3 million.
Not Follow The Law:
At the August 28, 2006 meeting, when the school board was deciding what to do with the reassessment overcharge, I asked the school board lawyer why the overcharge occurred? Specifically, I asked was the millage rollback law followed when the millage rate was set after the reassessment?
It was a simple “Yes” or “No” question, that had a simple “Yes” or “No” answer. I got 10 minutes of neither, some of what the Greenville News reported. Frannie Heizer, counsel for the district, said the school board was in “substantial compliance” with the law, but not “technical compliance” with the law. It is my understanding that the millage formula that was used to set the value of the mill for Pickens County School District last fiscal year took into account factors that are not contained in that formula, Heizer said.
The answer is “No”. The board unknowingly violated the law, by not following the millage formula in September 2005 when it set the rollback millage rate.
Let me explain 12-37-251(E):
State Law 12-37-251(E) governs the setting of millage rates in reassessment years and it states: (E) Rollback millage is calculated by dividing the prior year property tax revenues by the adjusted total assessed value applicable in the year the values derived from a countywide equalization and reassessment program are implemented. This amount of assessed value must be adjusted by deducting assessments added for property or improvements not previously taxed, for new construction, and for renovation of existing structures (ie, growth for that year).
Property tax revenues in 2004-05 were $37,829,144. The reassessed value of properties in 2005-06 was $387 million. That figure is adjusted downward by growth for that year of $9.3 mill, to total 377.7 million.
Following the formula stated in 12-37-251(E), $37,829,144 divided by $377.7 million equals 100.16 mills.
State Law 6-1-320(A) then comes into play.
(A) Notwithstanding Section 12-37-251(E), a local governing body may increase the millage rate imposed for general operating purposes above the rate imposed for such purposes for the preceding tax year only to the extent of the increase in the average of the twelve monthly consumer price indexes for the most recent twelve-month period consisting of January through December of the preceding calendar year. However, in the year in which a reassessment program is implemented, the rollback millage, as calculated pursuant to Section 12-37-251(E), must be used in lieu of the previous year's millage rate.
As calculated above, the rollback millage following worked out to be 100.16. Multiplying that by the increase in the consumer price index of 2.7%, yields 102.9 mills (100.17 x 1.027% = 102.9).
According to those two laws, 102.9 mlls is the maximum millage rate the school board could have charged, when it set the millage rate in September of 2005. In reality, the school board rolled the tax rate back from 118.4 to 108.9. (See the footnote below for more on how they got that number.)
At the September 2005 meeting, I kept arguing we aren’t rolling the millage rate back enough, and there is going to be an overcharge. It was like when I said the Greenville Plan was a scheme, or the referendum plan was too big. Again, every one looked at me like I had two heads. The board voted 8 to 1 to roll back the rate to 108.9 mills. I voted against it, because the rollback did not go far enough and I thought the board would end up overcharging taxpayers.
State Law 6-1-320 (C) then comes into play.
The district could have charged a rate higher than 102.9 mills, if it properly called a meeting to notify the public. 6-1-320(E) states: The millage rate limitation provided for in subsection (A) may be overridden and the millage rate may be further increased by a postiive majority vote of the appropriate governing body. The vote must be taken at a specially-called meeting held solely for the purpose of taking a vote to increase the millage rate. The governing body must provide public notice of the meeting notifying the public that the governing body is meeting to vote to override the limitation and increase the millage rate [above the limit in subsection (A)]. Public comment must be received by the governing body prior to the override vote.
The board held a special meeting in September 2005, but what it didn't do was allow for public comment or notify the public it was going to set the millage rate above the limit in subsection (A).
The Actual Excess:
Recently, it was determined the overcharge was $1.6 million. That is inaccurate.
The millage rate the school board set was 108.9 mills. It should have been no higher than 102.9 mills. Therefore, it was 6 mills too high. That’s $2.3 million ($387,000 value of a mill x 6 = $2.3 million), not $1.6 million.
The $1.6 million excess was arrived at by taking the amount of revenue that was collected in 2005-06, less what was budgeted for in 2005-06. No where in the law does it define the excess as that. I asked the attorney, the auditor and the Department of Revenue, and they all agreed the excess was not defined that way in the law.
To calculate the excess, you need to follow the formula in the law, like I did above. Doing that, it put the excess at $2.3 million, not $1.6 million.
Settling The Excess Or Overcharge:
When there are excess collections or an overcharge, that is handled by law... SECTION 12-43-285(B). Certification of millage rates; excessive rates. (B) If a millage rate is in excess of that authorized by law, the county treasurer shall either issue refunds or transfer the total amount in excess of that authorized by law, upon collection, to a separate, segregated fund, which must be credited to taxpayers in the following year as instructed by the governing body of the political subdivision on whose behalf the millage was levied. An entity submitting a millage rate in excess of that authorized by law shall pay the costs of implementing this subsection or a pro rata share of the costs if more than one entity submits an excessive millage rate.
The question is, what does “credited to taxpayers” mean?
I emailed the analysts at the Department of Revenue, and they wrote me, “You ask what is the meaning of ‘must be credited to the taxpayers in the following year.’ We have seen this treated in two ways: One, by actually refunding the funds based on each property's taxable value and appropriate millage. The second treatment involves the reduction of the taxes in the ensuing year by offsetting the millage in the amount needed to dispose of the funds held in a separate account as required in 12-43-285(b)”
Did the board violate 12-43-285(b)? The month before the board leadership called a special meeting, and raised spending and the tax rate by 4-mlls. It then called another special meeting the next month to use the overcharge to cover that new spending, and it reversed the 4-mill tax hike.
I'm not sure if the majority of the board violated the law, but it surely it did not refund the overcharge to the taxpayer. It used the excess or the overcharge to pay for new spending instead, and that kept the tax rate from going up.
The bottom line is, the school board needs to follow the law. If the board doesn’t follow the law, because they get bad advice or just don’t know they are breaking the law, I’m going to tell the people about it.
The vulerability to a lawsuit could be the board not returning the $1.6 million, but spending it on new spending. They were were short in defining the excess. The county auditor defined the excess as the revernue collected, less the budget. No where in the law does it say that is how the excess is defined. As we mentioned above, following the law, the excess was $2.3 million. Thus, excess was not $1.6 million, but $2.3 million, so they could be sued for the difference or $700,000.
The mistake the school district made in calculating the rollback millage in September 2005 was, the district started with the 2004-05 revenues of $37,829,144 and divided it by the low reassessed values of properties in 2005-06 of $377,605,570 (it had an appeals allowance in there), less the growth of $9,321,270 or a total $368,284,300 and then multiplied that by a 95% collection rate to get $352,232,604 in the denominator.
That was a mistake. Remember what the attorney said, “It is my understanding that the millage formula that was used to set the value of the mill for Pickens County School District last fiscal year took into account factors that are not contained in that formula.”
Nowhere in 12-37-251(E) or the millage rollback formula, does it say the the collection rate or appeals allowance factored into the formula.