School Tax Reimbursement – The Past and The Future

Malane Pike

S.C. Department of Revenue

October 13, 2008

New Property Tax Relief – NPTRThe New Homestead Exemption Fund

• Tier 1 – The old $100,000 property tax relief fixed at the 2006-2007 rate

• Tier 2 – The school operating portion of the old homestead exemption for those 65 and older, blind, or totally and permanently disabled fixed at the 2006-2007 rate.

• Tier 3 – School operating millage on owner occupied residential property

Formula for Tier 3

2007 NPTR FileMinus

Old $100,000 Property Tax ReliefMinus

Homestead School OperatingPlus

“The Bump”Minus

Lease Purchases for Capital Improvements

Payment Timeline

• Tier 1 (Old $100,000 Exemption)90% by December 1st

Balance by last quarter of fiscal year

• Tier 2 (Old Homestead Exemption)Paid by last quarter of fiscal year

• Tier 3 (New Property Tax Relief)9 equal monthly installments beginning October 15th

Final adjusting balance payment by the close of the state’s books for the fiscal year

Timeline of Events• October 2007Office of Research and Statistics estimated NPTR

payments and DOR made first 1/10th payment.

• March – April 2008DOR received NPTR files from the county assessors.

• May 2008Realized problem with Lease Purchase Millage for

Capital Construction. DOR asked school districts who included this in school operating to come forward.

Timeline of Events (Cont.)

• May – June 2008DOR audited reported financial records of School

Districts to detect lease purchases for capital improvements..

• May – July 2008DOR conducted county audits of legal residences

submitted on NPTR files.

• June 2008DOR called every school district to confirm existence

or nonexistence of lease purchase agreements.

Timeline of Events (Cont.)

• July 1, 2008Deadline to resubmit NPTR file to include

additional legal residences. Law suit filed against DOR on the Lease Purchase issue.

• August 2008DOR made reconciliation payment to the counties.

• October 2008Office of Research and Statistics estimates NPTR

payments and DOR makes first 1/10th payment.

Lease Purchase Issue

• Office and Research and Statistics and DOR discovered that certain school districts had included lease purchases for capital improvements in school operating millage.

• DOR issued Property Opinion #2008-03 along with a Memo asking school districts who had requested reimbursement for such lease purchase millage to come forward and identify the amounts.

• DOR subsequently audited reported financial information of each school district to determine which school districts to adjust.

Types of Lease Purchases that Were Reimbursed

• Lease Purchases for Personal Property

(e.g. computers, copiers, faxes, postage meters, audio visual equipment, etc)

• Lease Purchases for Johnson Controls contracts (aka efficiency contracts)

Law Suit Involving Lease Purchases

• Brought by Berkeley, Orangeburg District 5, and Spartanburg District 5

• Has been brought in the original jurisdiction of the S.C. Supreme Court

• S.C. Supreme Court has disallowed discovery – Court has not indicated if it will allow oral argument.

• Briefs have been filed by the Plaintiffs.• DOR is currently preparing its Brief.

School Districts Adjusted for Lease Purchases for Capital

Improvements• Berkeley

• Charleston

• Florence District 3

• Orangeburg District 3

• Orangeburg District 5

• Spartanburg District 1

• Spartanburg District 5

How the Lease Purchase Adjustments Were Determined

• Used information from most recent Local Government Report (2006)

• Computation:Assessed Value of Residential Property

Divided by Assessed Value of All Property

Multiplied byTotal Lease Purchase Amount

What Happened Next in the Lease Purchase Saga

• Each school district was notified of:

1. Total lease purchase amount2. DOR computation of adjustment3. Time period to dispute accuracy of

DOR information

• One school district provided a correction

Reimbursements for 2008-2009

• Reimbursements are now solely computed by Office of Research and Statistics

• DOR has provided the Office of Research and Statistics with the amount of Tax Replacement dollars paid (i.e. not including supplemental amounts paid to get to $2.5 million) less late filed homesteads.

• Office of Research and Statistics has provided DOR with new payment for 2008-2009.

• Counties should be receiving 1st checks this week.

Computation of Reimbursement for 2008-2009

• Tax Replacement Amounts from 2007-2008 will be increased by:

an inflation factor equal to the % increase in CPI for the SE Region for the previous year

PLUS

% increase in population of the state in the previous year.

• If the total increase is less than 4%, it will be increased to 4% if funds are available

% Change in CPI and Population Growth Used for 2008-2009

Reimbursements

• % change in Southeastern CPI = 2.91%

• % change in Population Growth

Statewide = 1.79%

Computation of Reimbursements (Cont.)

• All of the increases will be aggregated and apportioned out to the school districts based upon the following:

Each district’s weighted pupil units as a % of statewide pupil units with an additional add on of 0.20 for students in poverty

Poverty Weighting

Revenues generated by the poverty weighting must be used to provide:

1. Services and research based strategies for addressing academic or health needs of these students;

2. Summer school;3. Reduced class size;4. After school programs;5. Extended day programs6. Instructional Materials7. Any other research based strategy to improve student

academic performance

$2.5 Million Supplemental for 2008-2009

• For those counties whose school districts collectively will not receive at least $2.5 million for tax replacement this year, the law guarantees that the county will receive at least $2.5 million in total.

$2.5 Million Supplemental for 2008-2009 (Cont.)

• Computation of Distributions to the School Districts:

135 day average daily District membership

Divided by

Total average daily membership in all districts in the county

Multiplied by

Amount of supplemental funds received to bring county reimbursement up to $2.5 million