Explaining Beaufort's looming revenue woes

In a regular e-mail update, City of Beaufort Mayor Billy Keyserling took the time to explain the challenges looming for the city as it looks to make up lost revenue in the next fiscal year's budget.

In summary, the challenge lies in new state rules and realized changes in property values, and the end results will either mean new fees, a sales tax increase, or property tax increase on owner-occupied home, or a mix of all of these.

Read Keyserling's thoughts below:

Every spring, the City Manager and City Finance Director -- inconcert with each of the City's Department Heads --  construct the annual Budget for the City of Beaufort. They start anew each year rather than the old way of taking the previous year's budget and simply adding any new money to do more of the same.


If you have watched the budget and very careful fiscal management in recent years, you will note that we became lean, cut what was necessary to trim during the recession while -- at the same time -- planning for the recovery and the future growth of this special place we love to call home.


We plan to do the best we can to stay on this path for FY 2014, though a couple of factors -- over which we have no control -- must somehow be addressed.


Some of these factors include:


The constraints the SC Legislature puts on local government budgets:  In just one year, one legislative measure, known as Act 388 significantly affected what the City and other local governments can and cannot do budget wise.  


First it took away the school district's ability to tax owner occupied homes though transitioning a sales tax to take the place of the "lost revenue"with a new state sales tax. While that may or may not have made sense, the outcome is that rental, business and second home properties took a huge hit and have been carrying an undue share of the burden of providing education dollars to the schools. (In a state that prides itself for being business friendly, this was a huge blow to businesses, investors in second homes and renters. Renters comprise more than 45% of the residents in the City, and non owner occupiend homes, vacation homes and business comprise almost half of the properties in the City.)


This is to say that Act 388 resulted in raised rents for renters, a disincentive to buyers of second homes and to businesses who might want to move to the area. (As just one of many examples of the impact of Act 388, the property tax on my personal waterfront home is slightly over the 25% of what I pay on my late mother's condominium which is currently not occupied. I pay about $2,600 and her heirs pay$9,600 for a property that is less valuable than the one that pays $2,600)  This certainly lays the ground work for consideration when thinking about our future budgets. .  In otherwords, a backdoor tax increase on about half of the properties in the City of Beaufort.) 


The second impact of Act 388 was that it caps taxes of local government. At the same time, while limiting what we can raise and spend, the State still permits local governments to raise fees for services which are little more than an end run around the law. In other words, they force us to be sneaky which makes me feel very uncomfortable.


The expiration of TIF I from which the City paid for a significant portion of the maintenance for the Henry C. Chambers Waterfront Park and subsidized a higher level of daily street and sidewalk clearing between Bay and Craven and Charles and Carteret; this funding is no longer available and leaves us about $350,000 short from last year's budget if we are able to maintain that level of service which has contributed significantly to the well bring of the core commercial district appreciated by residents and those who visit us.


The collapse of property values throughout the county, due to the recession, creates uncertainty about the level of property tax revenues we can expect; Though we know if will be less than last year because the basis for taxing will be less;


The prospect of "rolling up the millage rate" -- counter balance to stay revenue neutral as was the "rolling back of the millage rate" when property values in past years were escalating;   (When values rose, state law required we roll back the millage so there was no windfall, and now we have the opposite challenge to roll up to remain revenue neutral)


The State's continued inability to maintain road rights of way and drainage which are assets the State owns and should maintain since they secure the beauty and quality of life in our small city; (In recent years, we have been doing a great deal of this work with city dollars, but are now asking if we should or can,without a funding sources, continue to put this burden on local property tax?)


Finally in recent years we deferred purchasing almost obsolete equipment and rolling stock waiting on better days we hoped would be ahead.



There are four phases to our budget process:


We examine the REVENUE we received in the previous year and try to project what it will be in the coming year. (About 1/3 of the City Budget is derived from Property Taxes; another 1/3 comes from business licenses; and the final 1/3 comes from fees for services like building permits, inspections, garbage, storm water, hospitality and a diminishing amount of state and federal aid.)


 Department by Department, we review budget requests, and take a close look at EXPENSES while asking each Department Head what he or she needs in operational and capital expenses to maintain, if not improve, the level of services they provide the public. We also ask what can be postponed and what cannot? We review each request line by line and item by item.


We merge anticipated EXPENSES and projected REVENUES to determine if we have the required balanced budget. If the numbers do not balance, we explore ways to whittle down costs and/or find additional revenue. We normally do both.  


And when we have completed our budget, we put it out for public review and comment. At the end of that period, we make adjustments and put it up for the first of two formal readings.



In large part, because we will not have complete information from the reassessment, which took place this year, until later in the summer, we have taken a conservative approach and are estimating that we will have a short fall from last year. If this is the case, and if we choose to maintain services levels, we must find additional revenue.



One way to do this is to roll up millage as provided by in state law. This is likely as it does nothing more than keep up local government revenue neutral meaning at the same level as the prior years.


Another way to raise revenues is by establishing special fees for services. This could be a public safety fee to pay for fire and police. It could be a transportation fee to recover the costs we invest in maintaining state owned rights of way and storm water systems. (We already have a storm water fee which is used to capitalize storm water infrastructure, but it is not enough to maintain the state system.)


In their initial budget presentation, Staff recommended all three "sources for revenue." City Council has not yet debated these proposals, but will soon consider these recommendations after the public hearing.



While Council will have to make tough decisions this year, we, along with the Town of Port Royal and the Town of Bluffton, have proposed to Beaufort County a longer term solution for the future which is called a Local Option Sales Tax.


The short explaination of the Local Option Sales Tax is that a new penny sales tax (about half of which is generated visitors and not residents) voted into effect by the citizens, if they choose to do so,would be levied. For each dollar raised,  71% or 71 cents of every dollar of the "new" revenue would by law be allocated to a property tax credit to each and evey property owner (inclulding rentals,business properties and second homes) in the city while the remaining 29% could be set aside for capital investment for infrastructure and/or to suplement short fallsi in operating fnds like we are seeing this year due to some of the aforementioned factors described above.  More about that later.

To create the Local Option Sales Tax, requires the County Council putting it on a ballot so residents will have an opportunity to agree or disagree with the proposal. It appears that the County Council is currently split on whether or not we can do this.  They will discuss our proposal on Monday evening at their regular meeting. 


Meanwhile we hope you will take a look at the budget, let us know your thoughts and if possible attend the public hearing on the FY 2014 Budget Next Tuesday at 7 PM at City Hall.

If you are interested in the Draft of Staff Recommended FY 2014 Budget, and I hope you are, please review it and participate the Public Hearing Where You Are Encouraged to Share Your Views.


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