In 1976, voters passed a constitutional amendment amending legislators’ ability to provide for state borrowing. The ballot question was general, vaguely worded and failed to spell out what was arguably the most important part of the amendment: the creation of a new, automatic and limitless state property tax that could kick in with no warning and without debate or vote by the legislature.
The amendment mandates that the tax be imposed if the state is unable to make a payment on the debt. Unknowingly, South Carolinians voted to guarantee state debt with their property.
If the General Assembly fails to properly provide for debt payment, South Carolinians would get a bill for whatever amount was necessary to satisfy the payment.
Not only will this tax be immediate and without warning, but also without limit and accountability. In forcing the automatic tax to be levied and collected without action by the General Assembly, lawmakers guaranteed they would not pay the political price even though the legislature controls state borrowing practices.
There is no state law governing the implementation of the tax. The only authority is contained in the constitution, which says the new tax would be imposed “forthwith” without limit as to rate or amount upon all taxable property by the Comptroller General and collected by the Treasurer until the payment is satisfied. A spot check of other Southeastern states found no other state with such a provision in its constitution.
When and how the amendment was passed
The mandated state property tax provision was passed 1976, but voters likely didn’t know what they’d voted for. As required by the constitution, both the SC House and Senate voted to amend the constitution, but the ballot question appears to have been vaguely worded in order to give the legislature more flexibility to control state borrowing. There was no reference in the ballot question itself to an automatic state property tax.
How the tax would practically be implemented
The amendment requires that the Comptroller General impose the tax forthwith and that the Treasurer collect it – “sufficient to meet the payment…of such general obligation debt then due.”
The problem lies in the details. There does not appear to have been any enabling legislation passed to outline specifics as to how the tax would be implemented, i.e. who would certify that the revenue was unavailable for debt payment, how the amount would be determined, etc. Presumably those decisions would be left to legislators, or to the Comptroller General and Treasurer in office at the time.
The threat of an automatic state property tax
The property tax would be triggered if the state is unable to make a payment on the debt. While politicians in the 1970s may have thought there was no danger of that happening, today there are multiple factors that make such a scenario plausible and even imminent.
There are only two kinds of debt the state constitution authorizes: general obligation debt that is borrowed on the “full faith, credit and taxing authority of the state” and thus repaid by all taxpayers, and revenue debt that is repaid “solely from a revenue-producing project or from a special source,” and does not involve tax dollars. Revenue bond debt is incurred by state entities that have a separate revenue stream, such as tuition paid to universities, or that generate money from a project, such as a toll road.
The general obligation debt stands at around $1.2 billion. The debt service – which includes principal and interest – cost the state around $202.5 million in the last fiscal year, of which $49 million was interest. The debt was borrowed for such purposes as economic development, which includes land purchases and road construction for certain corporations; university projects such as the creation of the “knowledge-based economy” and construction of new buildings; and highways and state capital projects.
The revenue bond debt stands at approximately $12 billion (not including interest), and while the state constitution forbids using tax dollars to repay those bonds, the legislature has ignored that prohibition and funneled tax dollars to pay revenue debt.
The economic fallout will hurt across the board
Not only would a new and sudden property tax hit homeowners hard – many of whom could be at risk of losing their homes – it would hit renters as well. Rental property is taxed at a higher rate than primary residence, and most landlords would have little choice but to pass at least some of the cost on to tenants. The tax, which would apply to all taxable property, would cover vehicles as well. In addition, such a tax would hit businesses hard.
Any time businesses are hit with a sudden and heavy cost the pain is almost always necessarily spread to employees through salary cuts and layoffs, and to consumers through raised prices. The result could be higher unemployment and added stress to the state’s “safety net” services.
How to stop the automatic property tax
The only way to ensure that an automatic, immediate and limitless state property tax doesn’t kick in is to repeal it. In South Carolina that means a two-thirds vote in both the House and Senate to put a constitutional amendment on the ballot, then a majority vote at the next general election to repeal the provision, followed by another ratification vote in the legislature. Repealing the automatic property tax would not only protect taxpayers, it would force more responsible borrowing by removing the limitless – and politically pain-free – revenue source for debt.