Merging Columbia’s school districts a key to removing tax albatross from city’s neck

Editor’s note: This is the second in a four-part opinion series.

The most comprehensive analysis of Columbia’s economic position in decades lays bare why its businesses and renters pay the highest property taxes in South Carolina and the negative effect that has on our economy.

The study should not be taken lightly. It was independent in nature, commissioned by the city itself, and prepared by Dr. Rebecca Gunnlaugsson, who holds a master’s degree in mechanical engineering from MIT and a doctorate in economics from the University of Michigan.

Having the state’s highest property taxes hits home, literally. The study found that since 2010, home values in Rock Hill have gone up 63 percent; in Greenville, 33 percent; and in Charleston, 15.4 percent. And Columbia? We’re last, with a growth of only 2.5 percent.

While the city’s individual property tax rate is reasonable compared to our peers, when you add the county tax, library tax, zoo tax, recreation commission tax and Midlands Tech tax, Columbia’s rate isn’t just the highest in South Carolina for cities of comparable size (127 mills), it’s nearly twice as high as Charleston’s (59.8 mills) and Greenville’s (68 mills). Columbia residents also pay more than double the amount for their public schools (367 mills) versus Charleston (155 mills) and nearly twice as much as in Greenville (203 mills).

Nearly flat home prices mean people in Columbia cannot count on their homes to provide long-term financial security or even a reasonable return, and high property taxes mean higher rents for those who can’t afford homes.

As identified in the study, the problem is fixable, but some steps to reduce property taxes and spur growth are more difficult than others.

Three of the biggest challenges at hand are 1) addressing the high amounts residents pay in property taxes for the two local school districts; 2) reducing special millages that should be included in city operations or paid for by other types of taxes, and 3) changing commercial, apartment and rental home property tax structure.

Local governments provide a sizable portion of funding for school districts, with the bulk of that money coming from property taxes. Some property taxes are earmarked for districts’ day-to-day operations and, in Columbia, our price tag is high. Richland County School District One has the third-highest amount of per pupil funding ($11,389) from property taxes of any district in S.C., yet it is losing students. Richland County School District Two also is higher than the state average ($6,307), and it has grown by 64 percent over the same time.

We must acknowledge how these changing dynamics mean Richland County’s two largest school systems are working against each other and hurting our city.

A huge underlying issue is the state law that exempts owner-occupied residential properties from property taxes for school operations, replacing them, in theory, with reimbursements from the state. In fast-growing districts, the removal of owner-occupied residential property taxes from the equation means revenue is not keeping up, so a higher tax rate must be assessed on commercial and rental properties, including apartments.

That’s exactly what is happening here. Richland Two is seeing tremendous residential growth, so it is gaining pupils and owner-occupied housing (which provides no school revenues), but losing commercial property (as taxes become increasingly expensive). Conversely, Richland One is losing owner-occupied housing (and pupils) as more properties become commercial or rentals.

Richland Two’s excessively high property tax rates, the study concludes, are driving away commercial investment. It’s really not surprising. When you combine the property tax millage for school operations with the debt millage (the taxes commercial properties pay for school facilities costs), commercial and rental properties in Richland Two face the highest school tax rate in the state.

Meanwhile, Richland One has not reduced its excessively high school property tax rate to reflect its shrinking pupil and school sizes. Clearly, the situation is out of balance.

It is time to have an honest conversation about merging district operations here. Greenville and Charleston Counties both have single school districts. Columbia has two, and they compete for property tax funding. Having two districts instead of one adds salaries, increases costs and duplicates services.

The answer involves investigating where synergies exist to merge operations and finding a willingness to do so. The high tax rates are propelled by facility and administrative spending, not classroom spending. In fact, by controlling facility and administrative spending, we would have more money to use for classroom spending and could improve the quality of education. The good of Columbia’s students — helping all to reach their potential — is the ultimate goal.

The fix won’t be quick. It took years to get Columbia into the tax situation it is in now, and it will take years of correction to cure. Like aircraft carriers, school districts don’t turn on a dime. But they do turn when steered correctly.

Breaking up kingdoms, however, is never easy and rarely welcome, and this idea will have significant pushback. But if school district leaders are not willing to acknowledge the problem and come to the table, then the Legislature must step in for the betterment of all.

Beyond the schools, Columbia’s high commercial property tax rate was identified as another key issue choking progress. According to the study, Columbia is in a “ continuous loop of high property tax rates that lead to slower growth and poor property valuations. In turn, these result in smaller new tax revenue growth, prompting leaders to increase tax rates, which further deters growth and depresses valuations.”

The tax on commercial buildings – shopping centers, offices, apartments, rental homes, etc. – in Columbia is nearly twice as high as those in Charleston and more than 1.5 times what it is in Greenville, despite those cities’ faster population growth rates and new construction. In fact, taxes on average apartment complexes and rental homes in Columbia, the study reveals, are the highest in South Carolina.

To get new places for people to live and work downtown, we must lower commercial and rental property taxes by at least 25 percent. Of all the solutions proposed in this series, reducing commercial property, apartment, and rental home property taxes will require the most governmental buy-in, and perhaps need special legislation. It is, however, a key hurdle that must be overcome.

Together, these two pieces of the overall solution may be the most critical and the most difficult. They could require petitioning the General Assembly for special legislation. But make no mistake: They are crucial to kick-start the period of prosperity Columbia’s citizens deserve.

Joe E. Taylor, Jr. is CEO of Park and Washington LLC and a lifelong resident of Columbia. He also served as S.C. Secretary of Commerce from February 2005 through January 2011 and led the state’s efforts to land the national economic deal of the year in 2009 and again in 2010.