Act 261 of 1981 Uncovered
by Alex Saitta
August 1, 2007
The following is local legislation that was passed in 1981. It places a limit or cap on how much the Pickens County School District can grow local revenue (or property taxes) each year. Ever since Iíve been on the board, this law as been mis-interpreted by the school district. The cap is actually lower than the one the school district has been using. Now that the law is being interpreted correctly, it should work to keep local property tax increases more limited.
Description Of The Law:
When you pull up the Act 261 of 1981, youíll see this description of the code: AN ACT TO PRESCRIBE THE PROCEDURE FOR DETERMINING THE ANNUAL BUDGET AND SCHOOL TAX MILLAGE FOR THE SCHOOL DISTRICT OF PICKENS COUNTY INCLUDING A LIMIT ON INCREASED MILLAGE BASED ON THE GROWTH OF PERSONAL INCOME IN THE STATE PLUS ONE PERCENT EXCEPT UPON FAVORABLE REFERENDUM VOTE FOR A LARGER INCREASE.
According to the description, the school district is limited by how much it can raise the millage rate by the stated formula. But wait, when you go down and actually read the law or the code, it limits how much the board can grow property tax revenues. Thatís different. Limiting property tax revenue growth is more restrictive. Iíll demonstrate that below, but for now, stick with me on this.
Evidently, the staffer who wrote the description, did not read the code closely. Or if he did read the code, he didnít understand it. Fortunately, what the school board has to follow is the code passed by the legislature, not the description written by the staffer.
Actual Code Of The Law:
SECTION 1. B. The board of trustees of the district shall annually prepare a budget and recommend to the county auditor the amount of tax millage, computed to the nearest whole mill, necessary to defray the cost of such budget. As used in this subsection, ďbudgetĒ means that amount of the total cost of operating the schools of the district funded by ad valorem taxes on the taxable property within the district and shall not include funds obtained from other sources.
The word budget is defined in the code as the dollar amount of property taxes used to fund the budget. The code continues...
C. The board may recommend a budget increase not to exceed the dollar amount of the budget in the prior fiscal year plus a percentage of that amount based on the average increase in personal income in the State for the previous three calendar years plus the maintenance increase provided for in subsection D.
D. In addition to the increase provided for in subsection C there may be added to the budget an amount equal to one percent of the school budget for the prior fiscal year to be used for necessary school maintenance.
In terms we can understand, the board is allowed to increase the dollar amount of property taxes verses the prior year, by no more than a percentage increase in the average growth of personal income in the State for the previous three years (section C), plus 1% (Section D).
Letís say last year the school operations millage rate was 100 mils and that tax rate raised $40 million. Doing the division, the value of 1 mill is worth $400,000 ($40 million divided by 100 mils = $400,000 per 1 mil).
Letís also assume, the personal income growth for last year was +6.25%, the year before that it was +5.75%, and for the year before that personal income grow 6% in the State. Thus the three year average would be +6%. Adding in the extra 1% from section D of the code, property tax revenues can not grow more than 7% or by $2.8 million for this year ($40 million times 7% = $2.8 million).
OK, letís say this year, the amount of property in the county grew by 3%, so without a tax increase, that same 100 mills would raise 3% more or $41.2 million. Using the formula, the law limits property taxes from growing by more than $2.8 million. If property taxes naturally grow $1.2 million with no tax increase, then the board can only raise another $1.6 million via a tax increase of 4 mills maximum, for a total of $2.8 million in new property taxes.
Thatís the cap, $2.8 million in new property taxes or a 4 mil tax hike.
By the way, roughly, these number are close to real numbers the school board faces.
School Districtís Past Interpretation:
The school district was interpreting the law to read, they could grow the millage rate by 7% -- they must have been reading the incorrect description of the law. Continuing the example, they believed they could grow the millage rate 7% or from 100 to 107 mills. That is, they saw the cap as 7 mils, not 4 mils, as the code actually reads.
Interpreting the law their/ the incorrect way, how much extra money could they raise? Well, theyíd get $1.2 million in natural growth, like above, but they could raise the tax rate 7 mils or on top of that (or another $2.8 million), so they saw the cap as $4.0 million. That was incorrect.
In sum, the school board thought the cap was much higher than it really was. I have no idea if the school board has breached the cap in the past. The cap fluctuates year to year, as the growth in the personal income of the state changes. My guess is any tax rate increases above 3 or 4 mills probably violated the cap or law.
My belief is this oversight was an accident. Like I demonstrated above, the description was incorrect. I didnít catch it the first time, either, when I first rate the law a couple of years ago.
To me, what matters is, now that this internal inconsistency has been pointed out, and the lawyers agree, the district needs to follow the law to the letter, and live within this legal cap.
The first time I read the law, about two years ago, I didnít read it closely. This time, I studied it, and realized the code of the law -- sections B, C and D, didnít even mention the words ďmillage rateĒ but rather, limiting the ďdollar amountĒ. I then emailed Senator Martin and I asked for his take on it. He said the law limited the dollar amount of revenue growth, not the growth in the millage rate. He was very matter of fact about it. Heck, he wrote the law back in 1981, so I figured I was on very solid ground.
I then asked the Finance Director for her interpretation on it, privately, then in a board meeting. The third time I asked, and didnít get an answer, I asked the chairman of the board, BJ Skelton, to get our attorney to read the law. He did that.
I donít fault the Financial Director. This was a legal issue, not a financial one. The attorney said I had a point (meaning, my interpretation was correct, but she was afraid to say that because it opened up the district for possible law suits if it had breached the cap in the past). The attorney advised the school district make a change in the practice and start focusing on the percentage increase in the dollar amount of local revenue growth.
Power Of Referendum:
E. In the event the board finds it necessary to increase the budget beyond the limits prescribed in this act, it shall submit the questions to the qualified electors of the county in a referendum and obtain their approval prior to increasing the levy beyond the permissible limitations. Such referendum shall be ordered by the board of trustees.
The school board can raise revenue above the cap, but if it wants to, it must first get the approval of the voters in a referendum. It is a very well constructed law that is fair to the school district and the taxpayers.
By the way, the local state delegation in 1981 put in an extra 1% for building maintenance. Has the district used it for that? I suspect not.