Property Tax Credits

The Town sent out approximately 8600 checks to property owners in the Town of James Island last week.   Well, in reality, we paid a company to print the checks and mail them out to a data base we provided.

About a year ago, I looked at the 2009 Audit for the Town, I was surprised to find we had $2.4 in tax credits payable in on June 30, 2009.    When the Town received the the 2010 Audit last October, it showed $2.56 million in tax credits payable on June 30, 2010.

Of course, the previous administration sent out over $800,000 in tax credit checks in July of 2010, which reduced that item.   But each month, the Town receives a Property Tax credit check, which we put in the bank and add to our tax credit payable liability.

Why did the Town have such a large amount in Tax credits payable?   Because the tax credit checks were too small.   However,  the budget for the property tax payable fund showed expected receipts for the year, and check payments of $900,000, which simply copied the proposal made by the Clark administration.

My hope, all along, has been to work with the County Auditor's Office to have the tax credit placed on the property tax bills of James Island taxpayers, and then pay the money the Town receives directly to the James Island P.S.D. and no longer send annual tax rebate checks.

Sending the checks is expensive, it cost about $8,000 in printing and postage costs.    Further, because of problems in the database we use, the errors create an administrative nightmare.   Reviewing problems and issuing new checks because of problems with the checks issued in July has been a major drain on the time of our Finance Clerk.

However, I think that shifting to this system before the Supreme Court rules on the Town would be a mistake.   So, I thought that we might have to send out one more set of checks.

Last fall, I requested that the County Auditor's office provide a database of those receiving 2010 property tax bills in the Town of James Island.   (I also asked them to find out how much revenue a mil of property tax would generate as I reported before.)    It was my understanding that they had agreed to provide that information.

I was in no hurry.     However, at some point, I planned to request that Town Council approve a budget modification to pay out all of those accumulated tax credits payable.   Either we would send out one more set of checks, or, if negotiations with the Auditor's Office and the JIPSD went well, then everyone's property tax bills would be reduced and we would pay the money over to the JIPSD.

Then I went to Columbia and listened to the tone of Chief Justice Jean Toal's questions about the formation of the Town.

If the Supreme Court rules against the Town, then all funds will be seized and divided up.   That includes all of the money in property tax credits payable.

I became very concerned.  

I contacted the County Auditors office again for an updated database   I proposed a change in the budget to authorize the payment of the tax credits payable this fiscal year.   Budget changes require two readings, and so these were scheduled for the March 1st and March 15th meetings.

Because we hadn't received updated information from the County Auditor's Office, we began working on our existing data base, correcting for all the errors we had discovered since last July.    As March 15th approached, I contacted the Auditor's Office again, and they were still not ready.  

On March 16th, I made the decision to send out the checks using our existing data base.    In my judgment, it was the right thing to do, because of the risk of an unfavorable decision by the Supreme Court that could happen at any time.

Of course, when it turns out that the Supreme Court rules in favor of the Town, I will feel a bit foolish.   And as I, and the staff, work to fix the errors, I will wish we would have waited.

Again, I very much hope that this is the last time the Town will be sending out checks!

The 2011-2012 Budget

I have proposed a draft budget for the 2011-12 fiscal year.   That fiscal year will start on July 1, 2011 and end on June 30, 2012.

For the first time, the Town's budget is made up of department budgets, developed by the member of the staff responsible for each area.    The planning director created the first draft of the budget for the planning department, the public works coordinator developed the first draft of the public works budget, and so on.   This is different from the past, where the budget was put together by the planning consultant, Roy DeHaven.   

There have been two budget workshops where members of Town Council had an opportunity to discuss each department budget with the appropriate member of the staff.    A draft for a complete budget passed Ways and Means last Tuesday, but this simply moved it forward to the Public Hearing on April 4th.    After the hearing, there will be another budget workshop to provide an opportunity to make adjustments based on public comments, after which a final budget will be developed for a first reading on April 19th.     The second and final reading is scheduled for May 3, well before the deadline of June 30.

For the current draft budget, total expenditures are $2,050,000, which is approximately the same amount as was budgeted in 2010-11.   That was the budget that was very late, failing to pass in June of 2010, and then, in a modified form, being passed first in October and then modified in November.

As with the current fiscal year, I have proposed substantial expenditures on deferred maintenance on drainage over the coming year.   Deferred maintenance means spending money on catching up on drainage projects that should have been done in past years.    In other words, it represents regular annual maintenance that was neglected in the past.    Drainage ditches were allowed to fill up and become overgrown.       

How much deferred maintenance does the Town's drainage system have at this time?    Unfortunately, we still do not have a complete account.   Because the Town participates in the Charleston County Storm Water Utility, we have access to the County's database, but the system is still under development.   It was supposed to have been ready last December, but is now expected later this spring.   Still, when I asked the Director of Charleston County Public Works for a rough estimate, he said approximately $1,000,000. 

We are looking at approximately $460,000 in total expenditures on drainage maintenance for the coming year.    We budgeted $600,000 for 2010-2011, and so these add up to approximately the estimated amount.    Of course, after we catch up with the deferred maintenance, we will still need to keep up with regular, annual maintenance to avoid falling behind again.

How can the Town afford to pay for this backlog of drainage projects?   Fortunately, according to our February financial report, the Town has a net funds balance of nearly $1.4 million dollars.   Over the past 5 years, the Town collected money from the taxpayers and didn't spend it on anything.   The Town accumulated savings, which we call the net fund balance.    

Isn't it good to accumulate savings?   Perhaps, if it is your own money.   I am sure that many taxpayers would have preferred to keep their money rather than having the Town take it and just leave it in the Town's bank account.  Worse, putting money in the bank while letting the roof fall in is hardly wise.   Is is essential to  keep up with necessary maintenance.  In my view, the Town did need the money and should have spent it on needed drainage projects.   (This is easier said than done, however, and even today, the Town is making only slow progress in catching up on deferred maintenance.  Projects must be identified, planned, bid out, and then completed.)    

As the Town spends down these savings, there are three possible scenarios for 2012-13.   One possible scenario is that the Town will  fully catch up with deferred drainage maintenance and still have savings in the net fund balance.   In my view, a capital expenditure, like a down payment on a Town Hall, would be an appropriate use of those funds.  (Hiring additional employees or creating a new, continuing spending program would not be a responsible use of the funds.)      

A second, less favorable scenario, is that we will still be behind on drainage maintenance even after our net funds balance is reduced to the level we need to manage our cash position over the year--something between $500,000 and $250,000.     

At that point, we must reduce our expenditures to match our current revenues.  Fortunately, as the U.S. and South Carolina economies continue to recover, our current revenues should increase to $1.7 or $1.8 million per year.    If we have fully caught up with deferred drainage maintenance, a substantial reduction in drainage expenditures will be possible.    Otherwise, catching up with deferred maintenance will need to slow.

A third possibility is that we will still have deferred maintenance because we have yet to spend the budgeted funds.   If that happens, the net fund balance will carry forward to the next year, along with the need to use it to fund additional drainage projects.  (This scenario is looking more and more likely for the 2010-11 fiscal year.)

If it turns out that current revenues are not sufficient to keep up with regular maintenance and other needed expenses, (or catch up with any remaining maintenance,) current expenditures must be reduced or more current revenue obtained.   

It is important to understand, however, that the Town in no danger of going broke, even if we maintain expenditures at the $2 million dollar level.    The Town will be receiving about $1.2 million each year in Local Option Sales Tax Property Tax Credit funds.    

For the 2011-12 fiscal year, I have proposed that the Town pay out this $1.2 million to the taxpayers.   (I hope that this credit will appear on next year's tax bills and so reduce the amount paid by the taxpayers, with the Town directly paying the funds over to the JIPSD.   We would stop mailing checks to taxpayers.)    

The Town has been receiving approximately this amount for the last several years, but has paid out about 3/4 to the taxpayers.   As of last month, more than $2.5 million of tax credits payable had been accumulated.  So, by reducing the size of the tax credits to approximately what was paid in 2008 or 2009, the Town can easily afford to maintain expenditures at $2 million per year.        

I consider this approach to be a last resort, and believe that the funds the Town receives for the property tax credit should be given to the taxpayers as a property tax credit.   Because we don't have a Town millage, and the people of the Town pay the JIPSD millage instead, we are under no legal obligation to make these payments.   But I think providing this credit is the right thing to do.    Still, it is very important for everyone to understand that the Town could afford to operate at a substantially higher level of expenditure if necessary.

Welcome Hal Mason, Our New Town Administrator

Last Tuesday, the majority of Town Council voted in favor of appointing Hal Mason to serve as the Town Administrator.  

Hal Mason had a long career in local government in North Carolina before coming to Hanahan, where he served as Town Administrator for five years.

When I ran for Mayor, I explained that I planned to hire an experienced and professional Town Administrator.   I explained that I would continue to teach at The Citadel, and would be a part-time Mayor.  

When the Clark administration set the salaries for Mayor and Council in late 2007, there was a report suggesting that if the Town had an Administrator and the Mayor served part time, then the proper pay for the Mayor would be $15,000 per year.   If, on the other hand, the Town did without an administrator, then with the Mayor directing the day-to-day operations of the Town,  the proper pay would be $35,000.    Mayor Clark chose to be a full time Mayor, accept $35,000 per year, and do without a Town administrator.

However, the Town hired a Planning consultant--Roy DeHaven.  He was paid $60,000 per year and was on duty at Town Hall during the morning.   The duties of this "planning consultant" included everything--Planning, Building, Budgeting, Code Enforcement and Public Works.  

Soon after I became Mayor, Roy DeHaven was let go.  And so, the Town reduced expenditures by $60,000 per year.   Mayor and Council are free to accept only part of the permitted salary, and so, I reduced my salary to $15,000 per year.    That  saved $20,000 in salary expense.  

It was that $80,000 of annual expense that I planned to allocate to paying for an official Town Administrator.   Rather than having a "Planning Consultant" who played the role of a Town Administrator who was only here in  the morning but delegated almost nothing to our staff, we would have a full time Town Administrator.

The current budget has $30,000 devoted to Town Administrator salary.   That is much less than $80,000.   First, at best, I hoped to have a Town Administrator hired for January, so $30,000 would cover $60,000 per year until the end of June.    I realized that it might be necessary to pay more than that to hire the right person.   (While some part time administrators earn less, most earn much more.)    Still, I didn't want to have the maximum I was willing to offer right in the budget for every candidate for the job to see.   If necessary, I realized that I might have to return to Council to ask for a budget adjustment.

I have agreed to pay Hal Mason a salary of $65,000 per year.     Because he is coming at the beginning of April, there are sufficient funds to pay his salary for the rest of the year without any budget amendment.

What about the $80,000?   Are we saving $15,000?   Unfortunately, no.   Additional payroll costs, including taxes and benefits, are substantial for all of our employees, including our new Town Administrator.  (There were no additional payroll costs for the "planning consultant" because Roy DeHaven wasn't an employee of the Town.  He was a consultant.)   The total expense is more than $80,000 per year, and the remainder is just covered by the reduction in payroll expense for the Mayor.   Because my salary is smaller, the payroll taxes and retirement contributions the Town must make for me are smaller than they were for Mayor Clark.

Do we need a Town Administrator?    We have been able to operate without one.   We all owe a debt of gratitude to Councilman Leonard Blank, who has spent many hours at Town Hall, helping our former planner, James Hacket, step into his new role as Planning Director.    And most of all, to Councilman Carter McMillan, (currently Mayor Pro-tem,) who is almost always at Town Hall, and has done a tremendous amount of work in a variety of areas, but especially with Public Works.

Still, it is my judgement that substantial improvements in Town operations are possible.   And I believe that Hal Mason is the man to make it happen.